From 6 April 2021, any medium or large-sized organisation engaging a worker operating through an intermediary will be responsible for determining the worker’s employment status. This status must then be communicated to the worker and to any party contracted with for the supply of the worker, such as an agency.
Although the client (the medium or large-sized organisation) is responsible for determining employment status, it is the fee-payer who will have to operate PAYE if the determination means the worker falls within the off-payroll working (IR35) rules. The fee-payer, as the name implies, is the organisation paying the intermediary, and will often be different to the client. The intermediary will typically be a personal service company, but could also be a partnership, LLP, a managed service company or even an individual.
Status determination statement
Regardless of the outcome of the status determination, the client must provide a status determination statement (SDS) confirming the conclusion and the reasons behind it.
If there is a labour supply chain involved, the SDS must be passed down each stage of the chain until it reaches the fee-payer. This is extremely important, because if an agency receives the SDS but then doesn’t pass it on down the supply chain, the agency will be treated as the fee-payer, with responsibility for deducting taxes and paying them over to HMRC. The same for the client, who will be treated as the fee-payer until the SDS is carried out and communicated.
There are other situations where the client can end up being treated as the fee-payer:
- Failure to take reasonable care when making a determination; and
- Failure to respond within 45 days to a disagreement regarding a determination.
Status will have to be re-checked if the working practices of the engagement change or a new contract is negotiated with a worker.
HMRC’s guidance to off-payroll working for clients changes in April 2021. Details, along with several useful links, can be found here.