What Hirers Are Exempt from the Off Payroll Regulations Introduced on the 6th April 2021?
Many hirers wishing to continue engaging workers providing them services via a personal service company or intermediary are confused as to whether they are exempt from the Off Payroll Working Regulations or IR35 that came into force on 6th April 2021.
Changes introduced on the 6th April 2021 only affect medium and large private sector organisations with a UK connection. Small companies are therefore exempt. Under section 382 of the Companies Act 2006 a company qualifies as 'small' if two of the following conditions apply:
- the annual turnover is not more than £10.2 million
- the balance sheet total is not more than £5.1 million
- the number of employees are not more than 50
Therefore hirers who are trading in the United Kingdom will be obliged to undertake a status determination statement of their arrangements with individuals contracting through their personal service company or intermediary if they are unable to claim the small company exemption.
Many companies who are part of a group in order to avail of section 382 of the Companies Act 2006 will need to demonstrate to HMRC that its parent qualifies as a small company in accordance with section 60(c) of the Income Taxes Employment Pensions Act 2003.
To determine whether the parent company is a small company within the definition, the figures from all members worldwide of the group headed by the parent are aggregated together (please see employment status manual 10007 and employment status manual 10008). The size determination applies to all members of the group. HMRC have confirmed that a newly incorporated company, even if a member of a group, is treated as small until the beginning of the first tax year after the period for filing its accounts for that financial first year.
Therefore, hirers who set up companies for the purposes of engaging contractors providing services through their personal service companies will need to ensure that these rules are adhered to if they are to avoid undertaking the relevant status determination statements applicable to assignments with the contractor and their personal service company. Failure to do so could leave the hirer, who is unable to claim the small company exemption, being liable for any unpaid employment taxes, employer and employee national insurance contributions.