Important Change To Off-payroll Working Rules (IR35)

14th April 2022

It has been one year since the off-payroll working rules (IR35) changed in the private and voluntary sectors. Detailed information is available on Off-payroll working (IR35), to help you understand the rules and operate them correctly.  

There will be some client organisations in the private and voluntary sectors who did not meet the size conditions. As a result, they did not need to apply the rules for 2021 to 2022, but they should now.

Make sure you check the Employment Status manual for whether the rules apply to you every year. This is particularly true if you have: See https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10006

become a newly formed business
been bought by another organisation
grown in size over the last few years

If you are new to the rules, you may find the Steps you need to take guidance to off-payroll working rules useful. See https://www.gov.uk/guidance/prepare-for-changes-to-the-off-payroll-working-rules-ir35

If you are a small client organisation in the private or voluntary sectors and do not need to apply the rules, your contractors own limited company - often known as a personal service company (PSC) - will still need to consider and apply the rules. You may want to confirm with your contractors that you are not responsible for the rules due to not meeting the size conditions, and that they remain responsible for operating the rules. 

A large part of HMRC's focus remains on helping client organisations get things right and we are continuing to contact some organisations. If you are contacted, we will work with you to confirm and ensure that you are applying the rules correctly. This is in line with our compliance approach outlining how we will support customers to comply with the changes to the off-payroll working rules. See https://www.gov.uk/guidance/prepare-for-changes-to-the-off-payroll-working-rules-ir35

The published compliance approach states that customers will not have to pay penalties as a result of mistakes made when applying the rules in the first 12 months after the rules took effect (April 2021), unless there's evidence of deliberate non-compliance. This is regardless of when the inaccuracies are identified. This first 12 months has now ended, and penalties may now be charged on any inaccuracies relating to the operation of the rules that occur after April 2022.

We are also considering what changes we can make to our guidance and support to continue to help you to comply and would welcome any feedback on the support available and what additional support might be helpful. In particular, if you work in a sector, or engage contractors in particular roles, which you feel could benefit from additional support on the changes to the rules then please get in touch. You can contact us about our support available by emailing offpayrollworking.legislation@hmrc.gov.uk.

Payroll software indicator
Your payroll software should include an indicator to enable you to notify HMRC of any engagements being paid which are subject to the off-payroll working rules (IR35). This is likely to be named the ‘off-payroll worker subject to the rules' indicator.

It is mandatory to use this indicator for engagements determined to be inside the off-payroll working rules. It is only to be used by the deemed employer responsible for deducting Income Tax and National Insurance contributions on payments being made to:

the contractors own limited company
other intermediary - this could be a client organisation or an agency
The indicator is not to be used for any payments made which are not subject to the off-payroll working rules (IR35), for example payments made to contractors working as sole traders. It is also not to be used by a contractors own limited company - often known as a personal service company (PSC).

If you have used this indicator incorrectly, please make sure this is corrected urgently on a corrective Full Payment Submission for the relevant period.