UK and International Tax news

Off-Payroll Working Rules From 2020

Friday 9th August 2019

Recently published draft clauses for the Finance Bill 2019/20 include legislation for reforming the off-payroll working rules with effect from April 2020 when large and medium sized organisations in the private and voluntary sectors must determine whether engagements they enter into with contractors fall within the IR35 regime.

The off-payroll working rules (commonly known as IR35) are supposed to ensure that individuals who work like employees pay broadly the same income tax and national insurance contributions as employees, regardless of the structure they work through. The rules do not affect the self-employed.

The rules have been in place since 2000 but, according to HMRC, non-compliance is widespread. HMRC estimate that only 10% of those who should be applying the rules do so, and this could cost the Exchequer £1.3bn in 2023/24.

In April 2017, the government reformed the rules in the public sector to address this issue and the public sector reform shifted the responsibility for determining status from the worker’s personal service company to the public authorities engaging them. The reform also made the public authority or agency that pays the worker’s PSC responsible for accounting for and paying income tax and NICs under PAYE to HMRC, on behalf of the worker.

Evidence suggests that public sector compliance is increasing as a result, with an estimated additional £550m of income tax and NICs being raised.

Currently, individuals outside of the public sector who work through their own companies are responsible for determining whether the rules apply and paying any tax and NICs due.

In the Autumn Budget 2017, the government announced plans to consult on how to tackle non-compliance in the private and third sectors. Following a twelve-week consultation published in May 2018, the government announced in the Autumn Budget 2018 that it would extend the public sector reform to all engagements with medium and large-sized organisations. To give people and businesses time to prepare, this change would not be introduced until April 2020.

The government consulted on the detailed design of the reform between 5 March 2019 and 28 May 2019 and, in particular, on proposals to address four main issues:

  • the scope of the reform and the definition of small business,
  • how to ensure parties in the labour supply chain have the information they need to comply with the reform,
  • how HMRC should address non-compliance in the labour supply chain, and
  • how to address concerns about clients making blanket determinations and giving workers and fee-payers the power to challenge status determinations made by client organisations.

In the Autumn Budget 2018, the government announced that engagements with small organisations outside the public sector would be exempt from the reform, minimising administrative burdens for the vast majority of businesses. The government used the small companies’ definition in CA 2006 as the starting point for the carve-out for small businesses.

The government also consulted on proposals to ensure small unincorporated client organisations were out of scope of the reform.

Following the most recent consultation on the detailed operation of the new rules, HMRC have now published the government’s final policy proposals and draft legislation.

If you would like more information on the above, please contact Keith Rushen on 0207 486 2378.

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