April 2020 changes to off-payroll working rules – government launches review

United Kingdom

The government has launched a review into implementation of the April 2020 changes to the off-payroll working rules.

In November the Chancellor of the Exchequer, Sajid Javid said that a Conservative government would review the proposed changes. In its subsequent announcement the government made clear that the review is to address any concerns from businesses and affected individuals about how the changes to the off-payroll working rules will be implemented and to determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms. This will include an assessment of whether any additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted. The review will close by mid-February.

In parallel with the review, HMRC is to continue its programme of education and support activities to help organisations and individuals affected by the reforms to prepare.

The final form of the Finance Bill, the legislation that will effect the changes to the off-payroll rules, is yet to be published and it may be that the review results in some changes to the current draft legislation published in July 2019. However, there is no suggestion in the government’s announcement that its review will delay the extension of the off-payroll rules to the private sector beyond the current implementation date of 6 April 2020, with the focus appearing to be on ensuring smooth implementation and appropriate provision of support and education to help with preparation for the reforms.

Our advice is that businesses should continue with their preparations for extension of the off-payroll working rules to the private sector in April 2020 as currently expected. For further information about the reforms more generally, please see below.

Further information

Introduced in 2000, the IR35 rules were intended to ensure that individuals working through an “intermediary” (usually, but not necessarily, a personal service company), who due to the way they were working and the nature of their work, would have been regarded as employees for income tax purposes if engaged directly by the end user (the “client”), pay broadly the same income tax and National Insurance contributions ("NICs") as if they were employed.

In the private sector, it is currently for the intermediary to determine whether the rules apply and, if so, to account for income tax and NICs accordingly. This means that the tax risk lies with the intermediary, and therefore effectively the individual, rather than with the client.

In April 2017, the government amended the legislation for individuals providing services to a public sector client through an intermediary. The new rules (referred to as the off-payroll working rules) meant that the public sector client, rather than the intermediary, became responsible for deciding whether the individual should be deemed to be an employee for income tax purposes (assisted by an online tool known as CEST) and, if so, for accounting to HMRC for tax and NICs. From April 2020, the public sector reforms are to be extended to the private sector. 1.5 million “small businesses”, assessed based on turnover, balance sheet and employee headcount won’t be affected by the reforms and will remain subject to the current rules. For more detail on the reforms and how businesses can prepare, please refer to our earlier update here.