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How to Plan for the New Off Payroll Working Rules

on Monday, 09 December 2019.

New off payroll working rules for personal service companies (PSCs) will come into force on 6 April 2020. What can you do to prepare?

What Is IR35?

IR35 applies:

  • where a worker provides services to a client/hirer through a personal service company (PSC) or intermediary
  • and 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

Within the public sector, HMRC treats payments made from the hirer as earnings and subject to PAYE deduction. Within the private sector, the liability to pay tax and national insurance contributions falls with the PSC and not the client they provide services to.

What's Changing?

The rules will remain as they operate currently in the public sector.

As from 6 April 2020, within the private sector it will be the client/hirer that will decide whether the relationship with the worker or their PSC is one of employment. The hirer will be obliged to take reasonable care when determining the status of the relationship. The fee payer will be bound by the decision concerning status made by the client/hirer.

The issue is serious for all sectors, but the pharma sector has already been impacted, after HMRC sent a letter to 1,500 GSK contractors accusing them of non-compliance with IR35 unless they could prove otherwise. These contractors were told in early September that they had until 19 September to either agree with HMRC's assessment and make a payment to HMRC, or to disagree, providing reasons for their refusal to make payment. For those finding that they should be taxed in the same way as a salaried employee, needed to work out how much they owe in PAYE and National Insurance contributions.

What Does This Mean in Practice?

This may lead to disagreements where the worker wishes to provide services through the PSC as a contractor and does not want to work under a PAYE arrangement. This may in turn cause recruitment and resource issues.

Who Will the New Rule Apply to?

The new off payroll rules will only apply to medium and large private sector clients from 6 April 2020.

Smaller private sector organisations will not be subject to the new rules if:

  • they have an annual turnover of less than £10.2 million or a balance sheet total of less than £5.1 million
  • the number of employees do not amount to more than 50

What Should Businesses Do Now?

The government is to legislate to require the client/hirer to pass details of its status determination and reasons for the determination down the contractual chain as well as passing directly to the worker. Failure to do so will result in the client/hirer being treated as the fee payer and primarily liable for unpaid taxes.

HMRC have stated that where it does not receive the tax due then liability should initially rest with the party that has failed to fulfil its obligations until such time as it does meet those obligations.

Three Steps Businesses Should Take Now

Businesses who engage consultants through should:

  • Audit their terms and conditions
    and identify those contracts where services are supplied through a PSC and IR35 applies

  • Undertake a status determination in each case
    review both the contract that is in place and the day to day arrangements for the supply of the consultant's services to determine the consultant's status and prepare to provide a copy of the status determination to the consultant in time for the implementation date

  • Consider whether new contracts need to be put in place to manage the risks
    if the audit and status determination identify concerns about the status of the consultant, employers should consider whether they need to agree different arrangements going forward. If new arrangements cannot be easily agreed, this may require the employer giving notice to terminate the existing contractor arrangements. In cases where there are lengthy notice periods, implementing change may be complex and early action may help employers manage those risks.

We are holding an IR35 workshop on Thursday 16 January 2020 at 09:30am to 11:30am. If you are interested in attending, please email us at events@vwv.co.uk or call 01923 919 332. The workshop is free to attend but please let us know if you would like to attend.

If you have any queries please contact Michael Delaney in our Employment Law team on 01923 919 316 or complete the form below.


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