April 2020 changes to the rules on engaging "off payroll" workers21/01/20
The long-awaited changes to the intermediaries legislation (commonly referred to as “IR35”) to bring the private sector into line with the public sector, will be coming into force on 6 April 2020. From that date, medium and large organisations outside the public sector will need to decide whether the off-payroll rules apply to anyone providing services via an intermediary, and deduct tax and NICs where this is the case.
These rules have applied in the public sector since 6 April 2017.
What is happening before 6 April 2020?
On 7 January 2020 the Government announced that it would carry out a consultation next month to inform how the changes will take effect in the private sector, before the Budget which will be on 11 March 2020. The Finance Bill containing the legislation for these rules will then be published, just over three weeks before they are due to take effect.
Please see our November update for the reasons for the changes, and a more detailed explanation of IR35.
Effect of the new rules
Under the new rules, where the client receiving the individual’s services is a medium or large organisation outside of the public sector, responsibility for determining whether IR35 applies will move from the intermediary to that organisation (or, if there are agencies or third parties in the contractual chain, to the party closest to the intermediary in that chain). The client must provide a “status determination statement” confirming whether the worker in question would be regarded as an employee of the client for income tax purposes if the services were provided by the worker directly to the client, or as an office holder of the client. If he or she would be regarded as an employee, responsibility for operating PAYE and accounting for income tax and national insurance will fall on the organisation (or relevant third party).
Does it affect my organisation?
The legislation is being extended to apply to organisations which meet 2 or more of the following conditions:
- you have an annual turnover of more than £10.2 million
- you have a balance sheet total of more than £5.1 million
- you have more than 50 employees
This is in line with the small companies’ regime, and will include private healthcare providers, community interest companies and charities if they meet these conditions.
The new legislation is likely to have a significant impact on medium and large organisations outside of the public sector. Like public sector bodies, they will now also need to have systems in place for checking the status of any off-payroll engagements. Public sector bodies are required to continue complying with the legislation and are largely unaffected by the changes. However we are expecting new checks and processes to be developed by HMRC shortly which should assist both public and private sector bodies.
HMRC has already developed the Check Employment Status for Tax (CEST) service to help organisations determine whether the off-payroll working rules apply. HMRC is working with stakeholders to enhance CEST and develop new guidance before the reform comes into effect.
The Government has also indicated that it will introduce a statutory, client-led status disagreement process to allow individuals and fee-payers to challenge the organisation’s determinations.
Where organisations fail to comply with the new rules they may be liable to interest and penalties from HMRC.
How can Capsticks help?
We are offering a menu of services to support private sector employers in meeting the challenge of the new IR35 rules. These include:
- An audit of existing intermediary contracts to determine whether they are “in scope” for the new rules;
- Training for your HR and Payroll teams on the requirements of IR35;
- Template clauses to include in your agreements with agencies in order to discharge your notification obligations and protect your organisation from potential liabilities; and
- Template letters and contracts to go to workers covered by the new IR35 rules.
For more information, or to discuss the support that will be most suitable for your organisation, please contact Laura Horovitz, Raj Basi or Andy Uttley.