UK and International Tax news

Review of Off-Payroll Working Rules

Friday 6th March 2020

HMT has recently published its review of the changes to the off payroll working rules and its conclusions.

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 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.

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 2018 the Government announced 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.

In January 2020, the Government announced a review of the implementation of the April 2020 changes, to address concerns from affected businesses and individuals. The announcement made clear that the rules were due to come into force on 6 April 2020, and that HMRC would continue their comprehensive programme of education and support activities in parallel to the review.

While the Government acknowledges that there remains some opposition to this change, it believes it is right to address the fundamental unfairness of the non-compliance with the existing rules. The reform will therefore go ahead on 6 April 2020.

The Government has listened to stakeholders throughout the review process, and is making a number of changes to address concerns and support the smooth and successful implementation of the reform, in particular

  • Customers will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance
  • HMRC are confirming their previous commitment that information resulting from changes to the rules will not be used to open new investigations into Personal Service Companies for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour
  • In response to feedback from the roundtables that an immediate change would be beneficial, the Government has announced that the rules will only apply to services carried out from 6 April 2020 onwards
  • The Government will place a legal obligation on clients to respond to a request for information about their size from the agency or worker, and update the legislation to address concerns raised over the rules as they apply to off-shore companies.

HMRC have published detailed guidance on the reform and clarified the position on a range of concerns raised, for example the client led status disagreement process, including by making explicit the time limits within which a disagreement can be raised.

The Employment Status Manual guidance has been further updated in line with other outcomes from this review.

HMRC have already published a factsheet to support contractors prepare for the changes, and are continuing to step up their communications in the run up to implementation. HMRC are launching further products to support contractors in understanding the changes, including a self-help guide on how to spot tax avoidance schemes.

The Government has stated that it will continue to listen to stakeholders, and monitor and evaluate the operation of the rules. HMRC will commission external research into the impacts of the reform six months after implementation, including on how status assessments are being made.

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

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