Review of the New Off-Payroll Working Rules for UK Construction
Liam Tumulty, COINS expert on compliance, finance and VAT takes a closer look at the delayed off-payroll working rules (IR35) and the impact they could have on the construction sector, which relies heavily on contractor workforces.
Q: Off-Payroll (IR35) is coming. When will the new rules take effect?
The IR35 rules for off-payroll working are changing on 6th April 2021 for contractors and consultants who work in the private sector for large entities, such as construction companies. These changes will mean that personal service companies (PSCs) engaged by large entities will no longer be liable for IR35 taxes, but the entity paying the PSC will instead be liable. Small companies are exempt.
Q: In brief, how will off-payroll (IR35) working rules change?
The policy can apply if a worker provides services through an intermediary, for instance with a contractor’s own personal service company (PSC). The rules ensure that individuals working like employees, but through their own limited company, will pay broadly the same tax and National Insurance contributions (NICs) as individuals who are employed directly.
Q: Are there any other off-payroll IR35 rule changes?
Yes - under the changes from April 2021, responsibility for undertaking employment status assessments will become the responsibility of the fee payer using the services of the worker, whilst the responsibility for operating PAYE withholding will be that of the entity paying the PSC.
The legislation also introduces the concept of a ‘Status Determination Statement’ (SDS), which end users will be required to provide directly to the worker. The SDS must include not only the decision of the worker’s ‘deemed’ employment status, but also the rationale for reaching this conclusion. Deemed workers will need to be included in payroll returns and PAYE and NIC deducted as required. These rules apply to the UK.
Q: What preparation should construction companies make in the UK?
Construction businesses are familiar with dealing with a contractor workforce within the Construction Industry Scheme (CIS); however for IR35 construction businesses should review labour, contractors and consultant supply chains to determine where the rules apply. Firms should put in place policies and procedures for dealing with the various features of IR35. Clear communication channels will be essential and collaboration with their construction supply chain about the rule change is recommended.
Q: What impact are these likely to have on UK construction?
In addition to CIS labour, construction business will need to consider payments made for consultants and other professional services, for example contract surveyors, architects, engineers, and determine whether or not IR35 applies. The HRMC Check Employment Status for Tax (CEST) tool can assist determining if the IR35 rules apply.
In the construction industry some workers can be classified as off-payroll although they have been operating through CIS. HMRC guidance indicates that IR35 will take precedence over CIS (HMRC's Technical Note, point 47).
How will COINS construction software support this?
COINS have considered the impact of this legislation and have made the necessary changes to COINS construction software’s ‘Payroll Module’. The IR35 payments deductions will be made through the COINS payroll module and included in the payroll ‘Real Time Information’ (RTI) return to HMRC. In addition COINS construction HR solutions enable a VAT posting if required.
Will there be penalties if construction companies do not comply?
HMRC will initially take a ‘light touch’ to enforcing compliance with the new rules. Businesses should be aware of the risk of interest and penalties if not complying.
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