Will IR35 affect me?
IR35, the off-payroll working rules, were introduced in 2000 to ensure that those who choose to work through a personal service company (PSC) who would have been employees if they were directly engaged, should pay broadly the same in employment taxes as employees.
HMRC introduced new reforms applicable to the public sector in April 2017 shifting the responsibility for assessing whether or not the rules apply to the end-user of the services and introducing responsibility to the fee payer for accounting for and paying tax and NIC (including employer NIC) to HMRC through PAYE. This increased HMRC revenues by £410m and HMRC unveiled proposals in May 2018 to extend these reforms into the private sector.
What might the expected reforms to IR35 mean for the private sector?
If the government do extend these reforms to the private sector, they would present a number of challenges:
- new processes and additional resource may be needed to assess existing and proposed engagements;
- changes to accounting and payroll systems would be needed;
- staffing budgets would be reviewed taking into account the additional tax costs when an arrangement is found to be within the IR35 rules; and
- the end user of the services may need to undertake checks and provide assurances on the compliance of their labour supply chains used to source off payroll workers.
The consultation process will close in August 2018, with the expectation of an announcement of government response in the Autumn budget, with a potential earliest implementation date of 06 April 2019.
What can you do now?
It is accepted in the marketplace that change in this area is inevitable for the private sector. It is advisable for companies to assess the shape of their workforce now in order to estimate their liabilities under a new regime, and to decide if reshaping their workforce might be a better strategy going forward. This might include:
- contract assessment - assess existing contracts to check dates and if it will continue to be tax efficient way of procuring that service (strategic position);
- financial systems assessment – experience from the public sector has shown that companies need to have flagging procedures in place to catch an invoice for PSC staff so that they manage their liabilities appropriately; and
- add this to your risk register.
The RSM team can help with a workforce audit and liability estimate so that you are in the best position to make any changes needed ahead of the reforms that are likely to come in 2019. Our team also deliver training to procurement on this issue to ensure that any financial and reputation risk is appropriately managed.