13 February 2020
The off-payroll working rules, known as IR35, have featured regularly on these pages with the most recent instance (see Have your say on off-payroll working rules) featuring a consultation on legislation due to come into effect from 6 April 2020.
The off-payroll working rules have been in place since 2000.
They are designed to make sure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions (NICs) as those who are employed directly.
Reacting to some of the responses it has already received to the January consultation, HM Revenue & Customs (HMRC) has decided to issue further information in order to give businesses more time to prepare.
It notes that a common issue raised over the course of the review has been employers’ concerns over what payments the rules apply to and from when.
“The Government has listened and taken action early to give businesses certainty and more time to prepare to ensure the smooth and successful implementation of the reforms that come into force in April,” HMRC has announced.
The rules will now apply only to payments made for services provided on or after 6 April 2020. Previously, the rules would have applied to any payments made on or after 6 April 2020, regardless of when the services were carried out.
This clarification means organisations will only need to determine whether the rules apply for contracts they plan to continue beyond 6 April 2020. This is set out in updated guidance in the Employment Status Manual which can be found at https://www.gov.uk/hmrc-internal-manuals/employment-status-manual.
Public sector organisations already applying the off-payroll working rules will not be affected by this change. Contractors can find information about amendments to IR35 at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/857148/Contractor_factsheet.pdf.
Comment by Croner Associate Director Paul Holcroft
This news brings some much-needed certainty into the extension of IR 35 into the private sector.
These new rules apply to medium and large organisations in the private sector for services on or after 6 April 2020. Under this new regime, the engagers, not the contractors, are responsible for assessing whether contractual arrangements for service fall within the ambit of IR 35.
If they haven’t done so already, employers should take a few steps in the next couple of months to ensure that they will be compliant with the new rules.
Review arrangements with contractors — including the critical check on documentation — to ascertain if the IR35 rules apply.
Train managers and other relevant staff in the requirements of the new regime, particularly in the documentation (the SDS).
Calculate the commercial risks.
Familiarise everyone with the guidance.
Get it wrong, and it could be expensive with potential liability for any missing and unpaid tax.