IR35 Legislation and Sage 200

As of April 6th 2021, the IR35 legislation will come into place.

The IR35 legislation relates to the new VAT reverse charge system that came into place on 1^st March 2021. However, while the VAT reverse charge system relates to building supplies, the IR35 concerns the status of personnel.

IR35 legislation comes into place on 6th April and will change the way that ‘Clients’ make a decision on the status of a ‘Worker’ in order to decide if they should be treated as a Subcontractor and managed via the CIS scheme or if they need to be employed and paid under PAYE.

Before 6th April 2020

If a worker has a client in the public sector, it is the responsibility of the client to decide the worker’s employment status and inform them of their decision.

If a worker has a client in the private sector, it is the responsibility of the worker’s intermediary to decide the status of employment for each contract. The private sector includes not-for-profit organisations, such as some charities.

After 6th April 2020

From 6 April 2020 how the rules are applied will change.

Some rules already apply to all public sector clients, but from 6 April 2021 medium and large-sized private sector clients also need to apply them. The private sector includes third sector organisations, such as some charities.

The rules apply to all public sector clients and private sector companies that 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

NB: Balance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities.

HMRC proposes that all CIS registered workers will be counted as ‘employees’ under PAYE rules unless they comply with these conditions:

1. Control – There must be absolutely no (or minimal) control over the worker and they must provide all the necessary plant and equipment to complete the work.
2. Mutuality of Obligations – Workers must show that they can turn work down and that they are not obliged to take on the work from the company.
3. Substitute – The contractor should be able to provide other personnel of the same skill level to complete the work and the substitute should be engaged and paid during the same year.
4. Insurance – The worker must have paid public liability insurance or other relevant business insurances.

The decision-making process of whether the worker should be invoicing the client or being paid as an employee is still in the hands of the client. As a result, IR35 does not have any effect on the Sicon modules and no updates are required in order to comply with it.

We are following the IR35 legislation closely and will let you know if there are any further changes that will affect your Sage 200 system its associated products.

While there is no change to the software required, a change in the process as to how payroll figures are reported into Sage 200 is required. The following article from Sage details how to implement the new process.

A helpful guide on how to set up a new nominal code as required can be found in our tip of the week section on the website. For more information regarding the IR35 legislation please refer to the HMRC website. For more information as to how to process in payroll please contact Sage directly or refer to the following article Sage 50cloud Payroll and off-payroll working rules (IR35)

If you have any questions about the IR35 Legislation and Sage 200, please use the enquiry form or call 01332 959 008.