What happens if my payroll is affected by IR35 and minimum wage exemptions?

From April 2020, where an individual is engaged by a medium or large-sized business in the private sector and works through a company, the employer will be responsible for assessing the individual’s employment status under the off-payroll working rules (IR35).

The new rules require private sector organisations which engage workers via a personal service company (PSC), to undertake checks to determine whether the worker should be treated as an employee or as self-employed for tax purposes. You must provide the workers with your determination including your reasons.

Where the rules apply, the business or agency will be responsible for deducting income tax and National Insurance contributions (NICs) via PAYE and will be required to pay employer NICs.

An individual may be classified as a contingent worker if they:

  • put in bids or give quotes to get work
  • are not under direct supervision when working
  • submit invoices for the work they have done
  • are responsible for paying their own National Insurance and tax
  • do not get holiday or sick pay when they are not working
  • operate under a contract

Since 6 April 2017, these IR35 status rules have applied to engagers in the public sector. However, when introduced into the private sector next year the new rules will only apply to medium and large businesses that are the end-user of the worker’s services.

The Companies Act 2006 defines a small business as two or more of the following features:

  • a turnover of £10.2 million or less
  • a balance sheet total of £5.1 million or less
  • 50 employees or less

Self-employed individuals are exempt from receiving the National Minimum Wage or National Living Wage because they are not paid through PAYE, and they also do not have the employment rights and responsibilities of employees.

As a result, contingent workers tend to pay themselves on a piecework basis, where they are paid according to the amount of work completed rather than the length of time that you work.

To help determine whether the off-payroll working rules apply to your business, it is advised that you use the Check Employment Status for Tax (CEST) service.

How can MGI Midgley Snelling LLP help?

It is important to ensure that you are on top of your payroll responsibilities and up-to-date with the latest rates and rules at all times.

Get in touch with our expert team today for help in assessing your responsibilities.