Notwithstanding the current government review into implementation of the April 2020 changes to the off-payroll working rules (IR35), there is no suggestion that the existing timetable has changed. Indeed, since the launch of the review, the government has also published for consultation draft regulations that, broadly, enable the recovery of income tax and National Insurance contributions ("NICs") liabilities from another party in the supply chain in the case of default by the party treated as making a payment of earnings to the worker’s intermediary.
Against this background, we do not anticipate any delay to the extension of the off-payroll working rules to the private sector beyond the current implementation date of 6 April 2020; our advice is that businesses which may be affected by the changes and that have not yet considered or finalised their approach going forward now need to do so as a matter of urgency.
There is no ‘one size fits all’ and we are seeing a range of different approaches being taken by our clients. Much turns on the commercial realities the business faces, the appetite for risk, the arrangements under which contractors are currently engaged and the reasons behind these. Even where a business is confident that workers providing their services through intermediaries are genuinely self-employed, there are still obligations to implement relevant processes and systems in order to comply with the new rules.
For further information about the reforms more generally, including our earlier updates, please see below.
If this is an issue that affects your business, please get in touch with our Employment team through your usual contact; we would be pleased to talk you through the possible scenarios and practical steps to take. We can also help you identify risk areas, advise on possible revised arrangements in your supply chain, and train the relevant teams in your business.
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 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 6 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.