The government has now published new guidance on the proposed reforms to the off-payroll working rules (IR35) for businesses in the private sector, which is due to apply from 6 April 2020.
The new policies will be adapted from the existing legislation for IR35 in the public sector which launched on 6 April 2017 and will clarify the obligations of businesses hiring workers and those involved in the supply chain. It’s important to note that any changes in this area will apply to both public and private sector businesses from April 2020.
Who will be affected?
From the initial announcement it seems that there will be more responsibility placed on private sector employers and recruiters. It will affect those who use the services of off-payroll workers operating via intermediaries and others within the supply chain such as recruitment agencies providing these workers.
Why the changes?
Originally introduced in 2000, IR35 was intended to ensure that workers who operate via an intermediary make the same tax and National Insurance Contributions (NIC) as an employee would.
HMRC however have struggled to efficiently monitor compliance of the legislation since it’s implementation and claim that without change they will lose £1.3bn in tax and NIC by 2023/24.
What is the proposed change?
The proposed amendments will place the burden of determining the status of a worker on the business using the workers services. If it is determined that IR35 applies then it is the responsibility of the fee payer (end user or third party) to account for and pay the related tax and NIC, including the additional cost of employers NIC to HMRC.
Where the end user is a small business the burden of assessing and applying IR35 will remain with the personal service company, even where the worker is provided via a third party such as an agency.
Small business?
The existing definition of small company will apply to this rule. A small business is defined as having two or more of the following features:
- An annual turnover of £10.2m or less;
- A balance sheet total of £5.1m or less;
- 50 employees or less.
The consultation document proposes that a separate test for non-corporate end-user clients (such as partnership) will be applied.
More clarity
The government has acknowledged that further legislation is needed to clarify the responsibilities of each party within the supply chain.
They have also agreed that more clarity is needed around the processes which are followed when disputes and disagreements arise. Suggesting that clients develop and implement their own processes based on a set of requirements to be set out in the legislation.
The government has also committed to launch an improved Check Employment Status for Tax (CEST) service, which will be available before the reforms are implemented. They have also assured that they will provide an education and support package.
The new rules will no doubt create a bigger administrative burden for those within the supply chain as well as an increased rick of non-compliance. Affected businesses will need to ensure they have robust processes and procedures in place to meet the obligations and prepare for the implementation.
You can view the consultation at the link below and have your say:
Private Sector IR35 Consultation
If you are likely to affected by these new rules, then please contact us if you have any concerns or queries.
