Off-Payroll (IR35) private sector reforms – Will it affect you?

The Government plan to introduce the reformed Off-Payroll (IR35) working rules in the private sector in April 2020 and have issued a policy paper detailing the rules. If you are a large or medium size business that relies on freelancers or contractors, then you will be responsible for determining the IR35 status of assignments for the personal service company (PSC) that you engage.

Paul Tofton, Partner, explains in more detail at exactly who will be affected and what this means to you and your business.

Will it affect me?

The Off-Payroll (IR35) rules will affect the following according to the HMRC policy paper:

1. Individuals supplying their services through an intermediary, such as a personal service company (PSC), and who would be employed if engaged directly.
2. Medium and large-sized organisations outside the public sector that engage with individuals through PSCs.
3. Recruitment agencies and other intermediaries supplying staff through PSCs.

What are the Off-Payroll (IR35) working rules?

According to the HMRC policy paper:

• The aim is to ensure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as other employees. (does not apply to the self-employed)
• Will apply to engagements with medium or large-sized organisations in the private and third sectors. Responsibility will shift for operating the off-payroll working rules from the individual’s PSC, to the organisation or business that the individual is supplying their services to or the ‘end-user’.
• Engagements with small organisations outside the public sector are exempt, minimising administrative burdens for the vast majority of businesses.

What do I need to do?

The HMRC issued guidance in April 2019 on what you need to do to prepare.

1. Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
2. Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020. You can use HMRC’s Check Employment Status for Tax service to do this.
3. Start talking to your contractors about whether the off-payroll rules apply to their role.
4. Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.

There is a whole further complication with regards to ‘employment status’ to consider. Leading regional law firm Wilkin Chapman have been working with clients and issuing information in relation to the importance of determining ‘employment status’ so we would recommend that you fully understand this area too.

If you are a PSC and have a mix of inside and outside IR35 determinations during the financial year then working out your tax position is potentially going to become a lot more difficult too.

Read the policy paper here or visit the HMRC website for more guidance. If you are a PSC and have concerns over the impact or a medium to large sized business and need to ensure you have the correct measures in place to cover the additional administrative burden, then contact us for help. Speak to Paul Tofton or call 01472 350601 to talk to us.