Reminder: Off-payroll working rules from April 2020
Following a consultation in 2018, HMRC continues to forge ahead with the 6 April changes to the Off-Payroll Working (IR35) rules for the private sector.
The new rules shift the responsibility to the private sector engager to determine the employment status and make appropriate PAYE and National Insurance Contributions (NIC) deductions for any workers they engage with through Personal Service Companies (PSCs), where the worker would be employed were it not for the PSC. Where the worker is engaged via an agency, the obligation to operate PAYE and NIC will fall on the agency or organisation in the labour supply chain making the payment to the worker’s company.
Small company exemption
The private sector roll out applies only to medium and large-sized engaging businesses, so small businesses are exempt and are those which meet two out of the following three tests:
– annual turnover – not more than £10.2m
– balance sheet total – not more than £5.1m
– number of employees – not more than 50
Unincorporated businesses only need to apply the annual turnover test to a single accounting year rather than a two year test which applies for incorporated businesses.
Where the new rules apply, the end business must inform both the party they are engaging with (if an agency for example) and the worker of their decision whether or not the engagement is caught by IR35 (within the same 31 day time limit as currently applies for public sector engagements).
Under the new rules, workers can formally appeal a status decision, which provides for a 45-day period during which that decision can either be confirmed as correct or amended. This process can apply to both private and public sector engagements.
HMRC guidance and CEST
To help businesses prepare for, and operate the new rules, HMRC has published guidance, including targeted education packages, webinars, workshops and one-to-one sessions with businesses in particular sectors.
HMRC continues also to enhance its ‘Check Employment Status for Tax’ (CEST) online tool, following negative feedback on previous versions and recent tax tribunal rulings that have contradicted status outcomes given by CEST.
There remains strong opposition to these changes, with many claiming it will place unreasonable compliance and financial burdens on businesses who need to plan for and apply the new rules.
The government has certainly had bigger priorities in recent months with the December General Election and ongoing Brexit negotiations, giving some hope that the private sector roll out could yet be delayed to April 2021 or abolished altogether.
Now the election has passed, the Government is currently performing a limited review of the changes, but many anticipate the result of this will not be to halt the April introduction, but merely provide more support to ease the transition.
Assuming the rules take effect from April 2020, businesses using contractors should by now have already carried out employment status audits and looked at their admin systems. Given the right approach and sufficient planning ahead, it may be possible in some cases to maintain a flexible workforce that remains outside of IR35.
For some businesses, it will be necessary to seek urgent independent advice for professional opinions on employment status and help to identify areas of risk. We have considerable experience within Garbutt + Elliott on both employment status and IR35 matters and will be happy to provide assistance – for more information on any of these matters highlighted, email Richard Whitelock firstname.lastname@example.org.