Off-Payroll Working Changes

In April 2020, there will be significant changes in how the off-payroll working (IR35) rules are applied to the private sector. From 6th April 2020, it will be the contracting company, rather than the personal services company, that will be responsible for the “employment status determination” and to ensure that the correct tax and National Insurance are paid to HMRC.

Why are the changes being made?

Off-payroll working rules apply where a worker provides services to a company through an intermediary, such as their own personal services company (PSC). The use of a personal services company, where IR35 rules are not correctly applied will often result in an overall lower tax and National Insurance position. The intention of these changes is to encourage compliance with the IR35 legislation which that has already been in place for many years. This should ensure that individuals working like employees but through their own limited companies will pay roughly the same amount of tax and National Insurance as those people directly employed by the company.

Who takes responsibility?

Prior to 2017, it was the responsibility of the worker’s private service company to determine their employment status. However, in April 2017 the rules changed for the public sector, with the responsibility for determining the employment status shifting from the personal services company to the organisation for which they worked.

From 6th April 2020, private sector large and medium sized companies will now be responsible for assessing the employment status of workers and, if appropriate, for deducting and paying the relevant tax and National Insurance Contributions to HMRC.

Small companies should not be affected by the change in legislation so the personal services company will continue to be responsible for assessing their employment status. To qualify as a small company, the company must satisfy at least two of the following three conditions:

  • Turnover of £10.2m or less;
  • Balance sheet assets of £5.1m or less;
  • 50 employees or less.

Who will not be affected by these reforms?

For many companies there will be no change. Contractors, who are currently following the existing rules correctly will experience little impact. These changes also do not prevent people working through their own limited companies and will not affect the self-employed.

HMRC Support

On 22nd October, HMRC published a briefing document on the reform of off-payroll working rules to help clarify the changes. There are also a number of useful guidance notes and a “check employment status for tax” tool on the HMRC website. these can be found by following the links below.

Briefing on reform of off-payroll working rules
Understanding off-payroll working
Prepare for changes to the off-payroll working rules

April 2020 changes to off-payroll working for clients
April 2020 changes to off-payroll working for intermediaries
Fee-payer responsibilities under the off-payroll working rules

Check employment status for tax tool

If you need any further help and guidance on this issue, please get in touch with us.