Employment tax overview

Off-payroll working in the private sector

To increase compliance with the off-payroll working rules in the private sector, and in part to align the rules for the private and public sector, the Government has announced that large and medium sized private sector businesses will become responsible for assessing individuals’ employment status where they provide their services through an intermediary (normally a company).

These changes will be introduced from 6 April 2020 but the definition of medium and large businesses for these purposes has not yet been published.

Under this reform large and medium sized businesses will need to decide whether the off-payroll working rules apply. Where the rules do apply, the business, agency, or third-party paying an individual’s intermediary will need to deduct income tax and employees’ National Insurance Contribution (NIC), and pay employer’s NIC, when they make payment to that intermediary. The Government estimates that this change will raise over £1 billion in income tax and NIC in its first year of introduction.

The existing rules, where the individual’s intermediary is required to consider the off-payroll working rules, and to apply those rules when they do, will continue to apply for small businesses. 

A further HMRC consultation on the detailed operation of this major change will be published in the coming months, and the draft legislation is expected to be published in the summer of 2019.

Large and medium sized businesses in the private sector should not underestimate the time it could take to prepare for these major changes. Key action steps which must be undertaken in advance of 6 April 2020 will include:-

  • Identifying the number of workers operating via off payroll arrangements that the business engages and which could potentially be caught by these rules.
  • Assessing the direct and indirect financial impact of these changes. New processes and systems will be required, and the fee payer will need to account for and pay the related tax and NIC, including employer’s NIC, further increasing their costs.
  • Anticipating this change when entering into or renewing existing contracts with workers operating via off-payroll arrangements between now and 6 April 2020.

While it is good news that the Government appears to have listened to responses following their consultation by pushing back these changes to 6 April 2020 and excluding small businesses, this will nevertheless be an unwelcome development for the private sector, including those in the recruitment sector. 

What is unclear from the numbers produced by HMRC is how they have arrived at their 2020/21 prediction of a £1,165bn increase in net revenues raised. It appears this is on the assumption that all individuals providing services via their intermediary to these medium and large businesses will in future be paid via the payroll. As HMRC’s own policy costings statement says uncertainty here exists both in the tax base and behavioural response. On the face of it, we are sceptical the revenue raised will be anything like this number. 

It still feels like there is more to come here, not only is there the follow up consultation promised today, but we are still waiting to see the response to the wider consultation on status to be published following the findings of The Taylor Review of Modern Working Practices published in July 2017.

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