Matthew Upex from Moore Thompson discusses payroll changes

Matthew Upex from Moore Thompson discusses the ways businesses must prepare for important payroll changes in the months ahead in his latest column:

It is estimated that almost a quarter of the UK’s workforce now works on a contingent basis, either in the public or private sector, and so large and medium-sized businesses must be prepared for important payroll changes in the months ahead.

From April 6, these businesses must comply with the off-payroll working rules, also known as IR35, or face new liabilities.

The introduction of the IR35 legislation to the private sector, following its delay in April last year, requires the engager (employer) to decide whether freelancers and contractors, operating via a Personal Service Company (PSC), are working ‘as if they were employees’.

If the determination results in a contractor being within the IR35 rules, the business will need to deduct and pay income tax and National Insurance Contributions (NICs) to HM Revenue & Customs via PAYE.

Where an employer fails to correctly identify a worker as within the rules, the worker’s tax and NICs become their responsibility.

Engagers are required to undertake this IR35 determination for every new contract they agree with a worker, which can be an onerous task.

The new rules do not affect small businesses, as defined by the Companies Act 2006, where they meet two or more of these criteria:

• annual turnover is no more than £10.2m;

• a balance sheet total of no more than £5.1m; or

• no more than 50 employees

Many contractors have indicated that they intend to increase their daily or
hourly rate to compensate for their income tax and NICs being deducted by the businesses that they engage with, so those companies that are affected need to carefully consider the full impact of IR35.

They should discuss this with contractors as soon as possible so they can factor any additional costs into their employment budget and make fair and accurate determinations.

Any large or medium-sized business that relies on contractors should prepare their payroll systems and process for these changes and seek professional advice.

We are already working with many firms to help them get ready for these upcoming changes and are here to support any businesses that need our assistance.