D-BRIEF – Employment & Pensions Blog: Legislative Changes in the New Tax Year


Whilst businesses continue to deal with the ever-changing restrictions and guidance being issued by the Government in response to the Covid-19 pandemic, the latest iterations of which will form part of an upcoming blog, it is important that employers ensure that they are aware of other legislative changes that have been implemented upon the dawning of a new tax year.

Legislative Amendments
Changes that businesses need to be aware of that took effect earlier this month include the following:

  • Reforms to the IR35 rules on the engagement of contractors/consultants via their own intermediaries;
  • Increases to the national minimum wage, weekly pay cap and statutory rates of pay for absence; and
  • Reporting on an organisation’s gender pay gap.

Reforms to the IR35 Rules
“IR35” is the tax regime that applies where an individual provides their services to a client via a connected intermediary, such as a personal service company.  From 6 April 2021, the coverage of the IR35 regime is scaled back and instead the Off-Payroll Working regime will apply to such engagements where the ‘client’ is a medium or large private sector organisation (this regime already exists in the public sector).

The client will have to determine if the individual would have been an employee if they were providing their services directly.  If so, Income Tax and National Insurance will need to be deducted from the fees payable to the individual’s intermediary.  Responsibility for making those deductions will either rest with the client (if it contracts directly with the individual’s intermediary) or if there is a chain between the client and the individual’s intermediary then (in most cases) with the party in the chain immediately above the individual’s intermediary.

With employer NICs payable, and potentially also the apprenticeship levy, this means that such engagements will now become more costly.  In addition, the liability for PAYE and NICs can shift if one party does not comply with its obligations.

In light of the above, it is critical that businesses engaging contractors/consultants via their own intermediaries (whether directly or indirectly) carry out the following:

  • Issue Status Determination Statements: the client must determine whether the individual is a ‘deemed employee’ and communicate that result to the individual and the party with whom the client is contracting. The client must take reasonable care in making that determination.  There is a gov.uk tool that can be used which, if completed accurately, HMRC will accept the output of;
  • Have a dispute resolution process: so that the individual and party responsible for deducting and accounting for tax and NICs (if not the client itself) can challenge the status determination result. The client must respond to any challenge within 45 days;
  • Set up compliant payroll processes: where an individual is deemed to be an employee for tax purposes, and the client is contracting directly with their intermediary, then the client will need to put the individual on its payroll and ensure that it is deducting the correct amount of tax and NICs from the payments being made to them;
  • Maintain a clear audit trail: in order to demonstrate to HMRC that businesses have complied with the relevant legislation; and
  • Check contracts with agencies if an agency will be the one contracting with the individual’s intermediary: to ensure it is clear who is responsible for doing what and to seek protection against tax liabilities moving within the chain if one party does not comply with its obligations.

Statutory payments
As usual, April sees an increase in the rates of pay set by statute.  Employers will need to ensure that they are applying the new rates, in particular noting that the age threshold for the highest NMW rate has now dropped from 25 years old and over to 23 years old and over.

Payment Amount Date of change
National Minimum Wage where aged 23 and over (the National Living Wage) £8.91 1 April 2021
National Minimum Wage where aged 21 and 22 £8.36 1 April 2021
National Minimum Wage where aged 18 – 20 £6.56 1 April 2021
National Minimum Wage where aged 16 – 17 £4.62 1 April 2021
National Minimum Wage for Apprentices £4.30 1 April 2021
Weekly pay for statutory redundancy pay calculations (also relevant to unfair dismissal calculations) £544 6 April 2021
Statutory maternity, paternity, adoption, shared parental and parental bereavement leave pay £151.97 4 April 2021
Statutory sick pay £96.35 6 April 2021

 

Report on Gender Pay Gap
The obligation for employers with 250 or more employees to publish their 2020/21 reports on the gender pay gap by 5 April 2021 has been delayed for six months. Please see a blog that Devonshires recently published on this point here.

The “snapshot date” for the purposes of 2021/22 reporting has just happened so employers will now be able to assess whether they will need to report in April 2022.

Summary
The changes to the tax rules around engaging contractors/consultants are something which most businesses should already have prepared for as these were due to be introduced in April 2020 but were then delayed for 12 months.  However for those whose use of contractors/consultants is very ad hoc, this may not have been given much attention at the time but needs to be borne in mind now for next time they do want to use the services of an individual who operates via their own intermediary.

Regarding the change in statutory pay rates, HR and payroll need to ensure that the correct figures are being used in calculations.  Policies are not always updated annually to refer to the up-to-date statutory figures but for those employers who do this every year then they should be doing so now.

For more information on the changes mentioned within this blog, please contact a member of the Employment Team.


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