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How to Get Ready for the New Off Payroll Working Rules

on Tuesday, 20 August 2019.

New off payroll working rules for personal service companies (PSCs) operating in the private sector will come into force on 6 April 2020.

How will recruitment businesses be affected, and 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. As to the private sector, the current liability to pay tax and national insurance contributions falls with the PSC and not the client/hirer  who receive services.

What's Changing?

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 client/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.

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 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
  • and 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 has 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.

3 Steps Employment Businesses Should Consider

Employment businesses who are providing temporary workers through a PSC to a client/hirer  need to make sure that they:

  • are aware of the status determination by the hirer/client
    Failure to send on the status determination statement to the worker operating through the PSC will mean the employment business becomes liable for any unpaid income tax and national insurance contributions due where the determination of the relationship with the worker is one of employment.

  • examine their terms and conditions
    Employment businesses should ensure that the determination of the worker status is completed and that reasonable care has been adopted by the client/hirer in the determination process. Reporting obligations on the part of the client/hirer to the employment business should be made as part of the contractual obligation between the parties.

  • review their contractual terms and seek specialist advice now to be ready for the introduction of the new rules on 6 April 2020.

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

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