27 August
By Chris Gumbley
Categories: Government/Business/HMRC/Industry News/Taxation

Off-payroll working rules going ahead

Off-payroll working rules going ahead

The government has announced that from 6th April 2020, off-payroll working rules are to be extended to the private sector. If introduced, these changes will have significant implications for workers providing their services through personal service companies and also the end-user organisations that engage such workers.

The changes to IR35 that came into effect in April 2017 for the public sector will be extended to certain organisations in the private sector from April 2020. Responsibility for operating the off-payroll rules will be transferred from the individual to the organisation, agency or third party engaging the worker.

If the new rules apply, then the person providing services will be treated as an employee for tax purposes – therefore income tax and employee’s NIC will be deducted from the payment made to the company, and the payer will also be liable to pay employer’s national insurance.  Not only will this mean that the person providing services will have tax and NIC deducted from the invoiced amount, but also the liability to pay employer’s NIC could well mean the entity paying for the services will seek to renegotiate the rates payable.

The new rules will only apply to large and medium-sized businesses who engage the services of a worker when the worker is not directly employed by that business.

“Small” businesses who engage workers will be outside of the new obligations and services supplied to such organisations will continue to be dealt with under the current IR35 rules, with the worker and his or her personal service company effectively self-assessing whether the rules apply to that particular engagement.

The draft Finance Bill confirms that the definition of “small” is linked to the Companies Act 2006 definition.

 

This is where the business satisfies two or more of the following conditions:

  • Annual turnover of £10.2 million or less
  • Balance Sheet total of £5.1 million or less
  • 50 employees or less
  •  

End users will be required to determine whether the worker would have been an employee if directly engaged; if so, the new rules will apply to the services provided by the worker via his or her personal service company. This will be a significant additional administrative burden on the large and medium-sized businesses who will be required to operate the new rules.

HMRC has promised that the current CEST (Check Employment Status for Tax) online tool will be improved before the proposed start date.

There will be an obligation to pass details of the status determination down the labour supply chain. The liability for tax and national insurance will be the responsibility of the entity paying the personal service company. However, if HMRC is unable to collect the tax from that entity, the liability will pass up the labour supply chain, thus encouraging those entities further up the supply chain to carry out due diligence.

 

How we can help

Various groups are lobbying against the introduction of these changes but so far the government has given no indication that they will not be implemented from 6 April 2020.

 

If the lobbying does not succeed, people providing services to large or medium-sized organisations through their own company need to be aware that tax and NIC will be deducted from the amount paid to them – and also be mindful of payers looking to renegotiate rates.

Also, businesses engaging contractors could experience major disruption when the new rules come into force if they do not start to prepare for the practicalities of the proposals.

Our team of experts at Naylor Wintersgill can advise as to the best course of action in your own particular circumstances. If you think that you and your business may be affected by the changes ahead, contact us for support.