Changes to off-payroll working - IR35

The Government confirmed that the off-payroll working rules (IR35) will be reformed from 6 April 2020. It’s important not to underestimate the impact of these changes and to start preparing for them now. 

The impact of the changes will vary for the following:

Overview of the IR35 changes

The Government has confirmed that off-payroll rules first introduced to the public sector, have been amended and extended to the private sector. 

Who is likely to be affected?

  1. Around 60,000 engager organisations, predominantly medium and large-sized businesses outside the public sector that engage with individuals through personal service companies (PSCs). 
  2. Public sector organisations will also be affected by changes designed to improve the operation of the rules, for example around the employment status disagreement process.
  3. Recruitment agencies and other intermediaries, around 20,000 of whom supply staff through PSCs.
  4. An estimated 170,000 individuals who supply their services through an intermediary, such as a PSC, and who would be deemed employed if engaged directly.

Overview of the measure

The off-payroll working rules (IR35) have been in place since 2000. They were designed to make sure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as other employees. The rules do not apply to the self-employed.

The proposed legislation brings medium or large-sized organisations in the private and third sectors within the scope of the rules introduced for the public sector in April 2017. It shifts the responsibility for deciding whether the rules apply away from the individual’s PSC, to the organisation that is the end user of the worker’s service. This includes responsibility for deciding whether the rules should apply. Responsibility for deducting the associated employment taxes and National Insurance contributions will rest with the worker's fee payer.

An estimated 1.5m small organisations are exempt.  

Small company exemption

In the private sector the new rules will only apply to medium and large businesses that are the end user of the worker’s services and to the fee payer, if different, for example a recruitment agency. Where the end user of the worker’s services is a small business, the responsibility for assessing the arrangements, and applying IR35, will remain with the intermediary such as the PSC.

Based on current proposals, a small business will be defined by the Companies Act 2006, this is broadly a business that has two or more of the following features:

  • a turnover of £10.2m or less; 
  • a balance sheet total of £5.1m or less; and/or 
  • 50 employees or less.
Off payroll workers – the liability transfer rules

30 July 2019

The transfer of liability provisions will form part of the new IR35 rules from 6 April 2020. Under the new IR35 rules, the liability for the tax, NIC, and (potentially) Apprenticeship Levy due under PAYE where IR35 applies, will pass down the labour supply chain as each party satisfies its obligations.

HMRC can potentially transfer those liabilities to an agency at the top of the labour supply chain or to the end-client, where there is non-compliance further down the labour supply chain and it is not possible for HMRC to collect the amounts due from the offending party.

Who has liability under the new rules? How will these rules be applied? 
Off payroll working – status determinations and the status disagreement process

30 July 2019

The draft legislation also confirms that end users of services via intermediaries, such as Personal Service Companies (PSC), will be required to make status determinations and pass these to both the worker and the fee payer.

Also, the end user client will be required to set up and lead a status disagreement process, which will increase the administrative burden for businesses.

What is the draft legislation regarding statusdeterminations and the status disagreement process?
Off-payroll working – the perspective for individuals

30 July 2019

The Government believes the legislative changes will impact 170,000 individuals working through their own intermediary, such as a PSC. For these individuals, the deduction of tax and NI at source will have cash flow implications and, therefore, needs to be planned for.

What do individuals need to consider?