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On 6 April 2020, new measures will be in force to ensure fairness between workers and to increase compliance with the existing off payroll rules (IR35). The basis of these new rules is to create fairness between those working in the same way, by ensuring they pay the same income tax and National Insurance contributions (NICs) no matter if one of them works through a private services company (PSC).

Having already been applied to the public sector in 2017, the Government announced at the Budget 2018 that it would be introduced to all sectors from April 2020. From then, all medium and large organisations in the UK will be responsible for assessing the employment status of those who work for them via their own PSC, to decide if they should be treated as an employee or as self-employed for tax purposes.

If the tests show an employment relationship, between you and your contractor(s) as a medium or large organisation, you will need to deduct PAYE income tax and employee NICs, and pay employer NICs. Previously, it was the worker and the PSC’s responsibility but HMRC reported that less than 10% complied with their responsibilities.

Rules within the rules

  • It will not apply to small companies who meet two of the following criteria:
    • an annual turnover of less than £10.2m;
    • a balance sheet total of less than £5.1m;
    • no more than 50 employees.
  • If these are exceeded in two consecutive years, the business will no longer be deemed to be “small”, and the rules will be applied from the start of the following tax year.
  • For unincorporated organisations, those with a turnover in excess of £10.2m in one calendar year must operate the rules from the start of the following tax year. Detailed records of turnover per calendar year must be kept if different from the organisation’s accounting period.
  • The rules won’t be applied retrospectively – the focus is on new engagements, not historic cases.

New procedures

A procedure must be in place to ensure that once the employment status is determined, the decision and reasoning is correctly passed down to the contractual chain – this could mean advising agencies, the PSC, as well as the worker direct. It will be important to consider the GDPR/data privacy impact of this process.

The client company will also need a process to deal with the potential situation of a worker disagreeing with an employment status – HMRC will not get involved with disagreement resolution. Without a process in place, the company may still be liable for tax and NIC.

Currently, it is proposed that if any other party in the contractual chain fails to account for PAYE and NIC, the liability will be the client’s as the end user. We await guidance from HMRC on situations where they will not recover liabilities from the end user, as well as guidance on how companies will fulfil their obligations and how to implement a disagreement process.

Getting started

HMRC’s Check Employment Status for Tax (CEST) is already available to help determine if the off-payroll working/IR35 rules apply to the individuals who supply their services via PSCs to your company. Improvements to CEST are being development and tested to ensure an enhanced version is available by the end of 2019 in readiness for next year.

HMRC have also promised to provide extensive guidance to help organisations implement and apply the off payroll working rules correctly. This support will take the form of publications and education packages that will include webinars, workshops, and one-to-one sessions in various sectors.