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.
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.
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.
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:
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.
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