In January 2019 we reported that the rules for engaging individuals through their own intermediaries (usually personal service companies) are changing from 6 April 2020. These rules are commonly known as the 'IR35' rules.
The key changes effective from 6 April 2020 are:
- the responsibility for assessing whether IR35 applies in the private sector will pass to the end user of the off-payroll worker’s services unless that end user is a small enterprise. Where the end user of the services is ‘small’ then the existing IR35 rules will continue to apply; and
- where the end user decides that IR35 applies, the fee payer (which may be the end user or another third party such as a recruitment agency that pays the intermediary) will be responsible for accounting for and paying the related tax and National Insurance Contributions (“NIC”) due under PAYE, including the additional cost of employer’s NIC and (where appropriate) the Apprenticeship Levy.
In addition to the above, the government document issued on 5 March 2019 also:
- confirms the Government intends to use the Companies Act 2006 to define a small incorporated private sector end user for these purposes, but a different definition is likely to apply to a non-corporate private sector end user;
- proposes new rules which will apply to private and public sector organisations to determine where the PAYE liability rests where a party in the labour supply chain does not satisfy their obligations under the rules, and how this liability can be transferred to other parties in the case of default; and
- highlights that private sector end users caught by the rules and public sector end users may need to:
- give their IR35 status determination to more than one party, which could include the party they contract with for example a recruitment agency, the off-payroll worker themselves, and the fee payer if different; and
- introduce a process to resolve status disagreements based on requirements to be set out in legislation.
Whilst this government document provides greater certainty about how these rules will operate from April 2020, the final position will not be known until the draft legislation (which we are expecting to arrive in Summer 2019) has been finalised and the supporting HMRC guidance has been issued.
In the meantime, it is important that affected organisations, especially affected private sector businesses with larger populations of off-payroll workers operating via intermediaries such as personal service companies who will be considering these rules for the first time, start to prepare for these reforms now. Early preparatory steps should include:
- reviewing your current workforce to identify those individuals who are supplying their services through intermediaries, including those sourced through recruitment agencies;
- determining if these IR35 rules could apply for any current or new contracts that will extend beyond April 2020;
- discussing these IR35 rules with affected workers; and
- developing an action plan, and relevant policies, processes and procedures, to support compliance with the rules from April 2020.
Our updated IR35 flyer, which contains more detail about these reforms, and how RSM can help businesses prepare for the changes can be accessed here.