IR35 – Off-payroll working – Rules are changing from April 2020
The application of the off-payroll working rules will change on 6 April 2020. Currently these rules only apply to public sector organisations. For private companies, the worker’s Personal Service Company (PSC or Loan-out Company) is currently responsible for deciding if the off-payroll working rules apply, but that is due to change.
From 6 April 2020, all medium or large-sized private sector clients will be responsible for deciding workers’ employment status.
Does your company (or any company in your group) meet 2 or more of the following conditions:
- you have an annual turnover of more than £10.2 million
- you have a balance sheet total of more than £5.1 million
- you have more than 50 employees?
If so, you are classed as a ‘medium’ or ‘large’ company and the new IR35 rules are relevant to you.
If you do not meet the above conditions…
You qualify as a ‘small’ company and the worker’s intermediary i.e. the Personal Service Company (PSC or Loan-out Company) will remain responsible for deciding the worker’s employment status and whether the rules apply. However, producers need to ensure that engagement contracts with Loan-Out Companies contain key clauses to clarify who is responsible for certain payments.
Why is it relevant to the content creation industry?
Many directors, actors and other production personnel provide their services through a PSC. If a production company receives services from a worker through their PSC, it is possible that the arrangement will be caught by the off-payroll working rules (IR35).
These rules make sure that workers, who would have been employees if they were providing their services directly to you, pay broadly the same tax and National Insurance contributions as employees.
When the rules apply
The rules apply where:
- workers provide services to a production company;
- those services are provided through their own intermediary – most commonly the worker’s PSC or Loan-Out Company; and
- the worker would have been classed as an employee if they were providing their services directly to the production company.
HMRC provides guidance as to whether a worker is an employee in all but name. The following are key factors:
- Does the worker have to carry out the work personally, rather than being able to send a substitute?
- Do you have to provide the worker with work, and/or does the worker have to carry out any work that you request?
- Do you have the right to control how, when and where the worker carries out the work?
Answers of yes to these questions will point towards an employment relationship. Note that HMRC will look at the reality of the situation along with the terms of the contract.
A production company engages a freelance editor through his PSC on a project by project basis for 10-15 weeks at a time. The contract between the producer and the PSC includes a right of substitution – the editor is not required to provide the services personally and the PSC can appoint another in his place. The editor is free to set his own hours and place of work and to determine how the work is done, as long as the work is completed by the relevant delivery date. The contract term is structured by reference to completion of the specific project, rather than by a certain duration, and the editor is paid by reference to project milestones. The editor uses his own email address and is not held out as a member of the production company.
An arrangement of this type is unlikely to be considered one of employment. The IR35 rules would not apply.
A production company contracts an actor through her PSC for periods of 6-9 months at a time. The actor is obliged to provide her services personally and cannot appoint a substitute. She is required to work set hours each day during the relevant contract period, and from such locations as specified by the producer. There is an obligation on the producer to provide work to the actor throughout the contract term, and an obligation on the actor to accept the work. She is paid on a monthly basis. The actor uses a company email address, is required to comply with the producer’s policies and procedures and is entitled to company benefits (e.g. car parking space and pension).
In this situation, if the actor was contracted directly by the production company, she would be considered an employee. The IR35 rules are therefore likely to apply.
What you need to do
If you meet the conditions for a medium or large company, you must start applying the rules when the changes come into force. You’ll need to:
- decide the employment status of a worker for every relevant contract;
- pass your decision and your reasoning to the worker and the person or organisation you contract with (i.e. the PSC). You must do this if your decision shows that the off-payroll working rules apply or not;
- keep detailed records of your decisions and reasoning, including fees paid;
- have processes in place to deal with any disagreements that arise. If a worker disagrees with your employment status decision, you will need to respond within 45 days; and
- if you are the fee-payer (i.e. the party immediately above the intermediary in the service chain), you will need to deduct and pay tax and National Insurance contributions to HMRC.