This article has been saved to your Favorites!

UK Relaunches Delayed Payroll Tax Changes For Contractors

By Matt Thompson · January 15, 2021, 11:44 AM EST

The United Kingdom will press ahead with so-called IR35 changes to its payroll tax, forcing some freelance workers onto company books, after having postponed the change last year due to the coronavirus pandemic, according to guidance released by the British government.

The changes to the off-payroll working rules relaunched Thursday evening will require companies to deduct tax and social security payments for a contractor who is determined to be a de facto employee, and then pass those on to HM Revenue & Customs. The postponed changes will take effect April 6, according to HMRC guidance.

Off-payroll rules allow HMRC to levy additional taxes on contractors who work a full-time schedule like an employee but have not signed an employment contract. They are designed to ensure that false self-employment can't be used to avoid tax.

If the regulation had come into effect in April 2020, as it was originally meant to, companies would have had to determine the employment status of all their contractors based on three metrics: annual revenue of more than £10.2 million ($13.9 million), a balance sheet total of more than £5.1 million, or more than 50 employees.

Because the enforcement date was postponed by a year, the government could choose to adjust the figures for inflation. HMRC did not respond to a request for clarification about whether the figures would be updated.

If a worker disagrees with the assessment of being an employee whose true employment status is disguised as a contractor, HMRC has said there are options for appeal. To overturn a decision, an individual will need to "give details of the employment status determination they disagree with; give their reasons for disagreeing; [and] keep copies of any records about disagreements," according to the published guidance.

There are several ways to determine whether a contractor would be considered genuine by HMRC, including who is responsible for providing equipment and training and whether mistakes are corrected at the contractor's expense. If the contractor assumes these responsibilities, it is less likely the individual is covered by the IR35 rules, according to HMRC.

--Editing by Vincent Sherry. 


For a reprint of this article, please contact reprints@law360.com.