Royal Mail contractors ‘frustrated’ by tax status test regime

by Joseph K. Clark

The Royal Mail is in the throes of rejigging its off-payroll workforce so that individuals whose engagements “are likely” to fall in the scope of the IR35 reforms will be shifted over to pay-as-you-earn (PAYE) working arrangements, the company has confirmed.

In a statement to Computer Weekly, a Royal Mail spokesperson said the firm has, in the lead up to the IR35 reforms coming into force from 6 April 2021, sought to assess its contractors – on both an individual and role-based point of view – to gauge their tax status.


As a result, it is now in the throes of transitioning the individuals flagged by these assessments as “likely to be” working inside IR35 from 6 April 2021 onto PAYE working arrangements.

This work may result in the firm adding these individuals to its own payroll or requesting those affected provide their services in the future via a PAYE umbrella firm.

“In preparation [for the reforms] we have undertaken initial assessments, on both an individual and role basis, and as part of that review, Royal Mail is moving those we believe are likely to fall inside onto PAYE arrangements,” a spokesperson said.

“In doing so, we are ensuring our compliance with the legislation without offering commentary on those individuals’ current tax arrangements.”

Under the terms of the incoming reforms, from 6 April 2021, medium-to-large private sector organizations will assume responsibility for determining how the contractors they engage with should be taxed.


Presently, it is up to contractors to self-declare if the work they do and how it is performed means they should be taxed in the same way as off-payroll workers (outside IR35) or as permanent, salaried employees (inside IR35). Therefore, an inside IR35 designation means the contractor in question is considered an employee of the company for tax purposes, so their gross pay will be subject to PAYE and National Insurance deductions.

As per HM Revenue & Customs (HMRC) IR35 guidance, private sector organisations must use “reasonable care” when determining the tax status of the contractors they engage by individually assessing their working arrangements on a case-by-case basis.

The outcome of these assessments must be confirmed in writing to the contractor in the form of a Status Determination Statement (SDS), which must also outline why their engagement has been classified as either inside or outside of IR35.

Computer Weekly understands Royal Mail’s preparations for the onset of the reforms have left some contractors frustrated because the company is not issuing SDS documents to contractors whose roles have been deemed inside IR35 due to the “initial assessments” it has carried out.

Contractors further claim this had made it difficult for them to challenge and query the results of these “initial assessments” as a result.


In response to this, a Royal Mail spokesperson confirmed: “We will not be providing PAYE workers with a determination or with specific reasons, as we are only required to do this where we are engaging via an intermediary after 6 April 2021.

The spokesperson added: “For those engaged via an intermediary after [this date], we will issue a Status Determination Statement and offer an appeals process in accordance with our obligations.”

Computer Weekly shared details of Royal Mail’s IR35 preparations with HMRC, who said it cannot comment directly on the company’s approach. Even so, a spokesperson for the tax collection agency confirmed private sector firms are only required to provide contractors with an SDS once the reforms come into play at the start of next month.

“When the off-payroll working rules change on 6 April 2021 all relevant client organisations must have a process to allow workers operating through an intermediary, such as a personal service company, to disagree with their status determination. They must also share their Status Determination Statement (SDS) with these workers, along with their reasons for coming to that conclusion,” the spokesperson confirmed.

“Businesses may consider whether limited companies or other intermediaries are the best way to engage contractors if they are working like employees. This is a business decision for organisations to make, and organisations are free to decide how they employ their workers.

“Some organizations might decide to offer workers employment contracts or offer them roles through an agency rather than directly,” the spokesperson added.

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