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IR35 - Government Launches Review of the New Off Payroll Working Rules

on Friday, 17 January 2020.

The government has launched a review into the implementation of new off payroll working rules for personal service companies (PSC).

These changes are coming into force on 6 April 2020, and there is no suggestion this review will affect the date of implementation.

IR35 Changes

The IR35 regime applies where:

  • a worker provides services to a client/hirer through a PSC or other intermediary
  • the working arrangements are such that if the worker provided the services directly they would be regarded for income tax purposes as an employee of the client/hirer

In such circumstances, HMRC treats payments made from the client/hirer as earnings that are subject to PAYE deductions. Under the original version of IR35, the obligation to assess whether the arrangement was within scope of the rules. Crucially, liability for failure to comply rested with the PSC, and the individual who owned it and provided services to the client/hirer.

In 2017, these arrangements were changed in respect of clients/hirers that were 'public authorities'. This placed the obligation on the public authority client, rather than on the PSC/worker, to assess whether IR35 applied, to make PAYE deductions and to assess the risks of non-compliance.

The changes coming into force on 6 April 2020 mean that these rules will apply to medium and large businesses in the private sector. The client/hirer will be required to decide whether the relationship with the worker or their PSC is one of employment. The party that pays the PSC will have to make the appropriate deductions. Where the client contracts with the PSC directly, it will be the paying party. Where the client/hirer's contract is with an agency that itself contracts with the PSC, it will be the agency that has to make the deductions.

The Review

The review launched on 7 January 2020 is intended to address concerns from both businesses and affected individuals. The government will:

  • gather evidence from affected individuals and business to attempt to ensure smooth implementation of the reforms
  • carry out further internal analysis including evaluation of HMRC's online tool to determine employment status for tax
  • determine if further steps can be taken to ensure smooth implementation

The initial review is due to be completed by mid-February.

What Should Businesses Do Now?

Regardless of this latest review, businesses must be ready for the changes coming in on 6 April 2020.

We have reported on the steps businesses should take if they engage consultants, and how to plan for the new off pay roll working rules.

If you would like further advice on the implementation of these changes, please contact Bob Fahy in our Employment Law team on 020 7665 0818, or complete the form below.

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