Legislation included in the Finance Act 2020 has confirmed the introduction of reforms to the off-payroll working rules from 6 April 2021 (commonly known as IR35). This will introduce additional obligations over and above the existing off-payroll rules that apply in the public sector.
These changes were originally due to come in from 6 April 2020 but a deferral was announced to 6 April 2021, in response to the spread of coronavirus, to help businesses and individuals.
How will the proposed changes affect public sector organisations from 6 April 2021?
The framework of the current rules will continue to apply but with some additional obligations.
There will be a need to put in place additional processes and procedures to assess engagements and provide a statutory status determination statement to the worker and any third party, for example a recruitment agency, setting out the reasons for reaching that determination.
All parties in the labour supply chain will need to pass on and be aware of the organisation’s (end user’s) status decision and the reasons for that decision.
There is an explicit requirement to take ‘reasonable care’ in undertaking the status assessments. Failure to do so or failure to provide a status determination statement can result in being deemed the fee-payer, where this is not already the case, resulting in a responsibility to account for PAYE/NIC withholding.
The end user of the services will be required to set up a status disagreement process and respond to representations made by off-payroll workers or the fee payer within 45 days of receipt. Failure to comply with the process in the required time enables transfer of debt provisions to apply.
What should public sector organisations be doing now?
The current off-payroll working rules in the public sector, introduced in April 2017, will continue to operate as they do now. Public authorities will not need to implement the changes outlined above until April 2021.
HMRC guidance on the current rules can be found here.
Organisations should continue to prepare for the new rules from 6th April 2021 and should not underestimate the amount of work required to be sufficiently prepared for the change.
We would suggest that public sector organisations should:
- review their existing status determination processes and consider what changes will be required to produce status determination statements and demonstrate that reasonable care has been taken;
- assess what new processes and systems will be required to manage status disputes within the required time;
- undertake due diligence on the worker supply chain. Transfer of debt provisions will apply in the chain under the new legislation, transferring PAYE and NICs liabilities, ultimately to the public sector organisation in certain situations where there has been non-compliance in the chain; and
- consider reviewing current processes and procedures to make sure they are compliant with the existing rules, as HMRC are undertaking reviews within the sector.
How can RSM help?
Our specialists have a detailed knowledge of the rules and practical experience of implementing the changes.
We have a multi-disciplinary team of experts who can provide advice and help you prepare for all aspects of the proposed changes, including:
- designing new processes and controls, such as payroll, human resources, finance, data management and IT;
- workshops and bespoke training;
- developing a tailored approach to status determinations and employment status; and
- changes to your budgeting, compliance, contracts and key stakeholder communications and employment law support through RSM Legal LLP.