The New Off-Payroll Working Rules: Do they apply to my business?

No – the New Rules apply to any type of business that receives services from a worker through the worker's intermediary (usually a PSC).  It is true that there have recently been a number of high-profile cases concerning the application of the existing rules to the PSCs of certain TV and radio presenters, but the rules apply regardless of the type of business concerned.

It is true that the New Rules do not apply where the client (i.e. the business receiving the services) is in the private sector and is considered small for Companies Act purposes (see the answer to Question 3 for an explanation of when a business will be considered 'small'). However, even if the business is small, this doesn't mean that the worker's intermediary is outside the scope of the off-payroll working rules completely. Instead, the existing rules will continue to apply and the intermediary will need to make the decision as to the worker's status and also account for any tax and NICs that become payable.

Broadly, a company (there are other tests for businesses not operating through companies) will be 'small' for a tax year if it meets at least two of the following for two consecutive financial years:

• It has a turnover of not more than £10.2 million;
  
  
• It has a balance sheet total (assets) of not more than £5.1 million;
  
  
• It has no more than 50 employees (averaged over the financial year). 

Balance sheet total means the total amount shown as assets in the company's balance sheet before deducting any liabilities.  When applying the criteria, the company has to look at the last financial year for which the period for filing its accounts and reports ended before the start of the tax year.  So, if a private company has a financial year ending 31 March, it must file its accounts by 31 December. In deciding whether the company is small for the purposes of the 2021/22 tax year it will need to look at the two financial years ending 31 March 2020.

A parent company can only qualify as small if the group as a whole (when aggregating the turnover, balance sheet total and, employees of the group) is small. Note that the exclusion for small businesses only applies to private sector clients and is not relevant to clients in the public sector.  Also, it is important to remember that only small clients are excluded – not small fee payers (e.g. agencies) or small intermediaries.  Some companies (such as public companies) are excluded from being small under the Companies Act even if they meet the financial tests set out above.

Note that a worker or agency will have the right to ask a client whether it is 'small'.  The client will have a legal obligation to respond to any such enquiry within 45 days.

No, the New Rules will still apply. This is because the legislation contains provisions under which a subsidiary with a parent that is not small cannot, itself, be treated as small.

It could do – where a company is not a member of a group you must add the turnover of any "connected" persons when working out its size.  In broad terms, a company will be connected with anyone that has direct or indirect control of it.

The New Rules won't apply to clients in the private sector (whatever their size) if they don't have a 'UK connection' for the relevant tax year.  Broadly, a company will have UK connection if:

• It is resident in the UK (essentially if it is incorporated in the UK or centrally managed and controlled here); or
  
  
• It has a permanent establishment in the UK (broadly this is if it has in the UK (i) a fixed place of business through which the business of the company is wholly or partly carried on or (ii) an agent acting on behalf of the company that has and habitually exercises authority to do business on behalf of the company).

Unlike the small company exemption, you only look to the client company (not the group as a whole) and there is no equivalent right for the worker or agency to ask whether or not the client has a UK connection.  As with the small company exemption, if the client has no UK connection, the existing off-payroll working rules will apply to the intermediary which will need to determine whether or not it has to account for tax or NICs under them. 

Unfortunately, not. This is an aspect of the change that many organisations may find surprising. Under the New Rules even if the intermediary with which you contract is fully compliant with the existing rules, from 6 April 2021, you, as the business receiving the services, will have an obligation to apply the New Rules instead (see the paragraph headed 'The New Rules in a nutshell' above).

It is therefore important that the services contract governing such engagements allows for the change and that you have the appropriate payroll processes in place.

Yes, the changes to the legislation don't just extend the rules to private sector clients, they also modify the existing processes for those in the public sector. One of the most significant changes is a new requirement for clients to issue a Status Determination Statement (SDS) to the worker and (where relevant) the agency with which they contract. Unlike the existing rules, the SDS also has to state the reasons for the decision up-front. There is a new client-led status disagreement process and you will need to ensure that you have appropriate administrative processes in place to deal with this (please read our companion article, 'The New Off-Payroll Working Rules: What do you have to do?' for more information).

Where the worker is not providing their services through an intermediary, other tax rules will ensure that tax and NICs are applied, therefore the arrangement will not be within the off-payroll working rules. However, clients need to be fully aware of the way in which their workers are hired particularly where long supply chains exist. Detailed due diligence is important as getting the rules wrong could mean that you as the client are responsible for unpaid tax and NICs (together with penalties and interest). You need to be absolutely sure that your workers do not provide their services through intermediaries that are caught by the New Rules.