What is it?
The government consulted on how the off payroll workers legislation should be implemented earlier this year and the decision was made to extend the IR35 legislation from the public sector, which was introduced in 2017, to the private sector from April 2020.
It is vital that those people who work through an intermediary - such as their own personal service company (PSC), agencies, accountants and agents who engage the services of a worker, HR managers and of course anyone involved in payroll - are aware of these changes, as now it is the responsibility of an employer or engager to assess a worker’s status to determine whether self-employed or an employee when engaged directly.
The aim of this legislation is to ensure those individuals, who work like employees, pay broadly the same amount of employment taxes and National Insurance contributions. From April 2020 employers/agents etc. will need to undertake the CEST test and if it determines an off payrolling worker, then the tax and NICs will need to be deducted from the service amount charged.
How will it change?
Currently (outside of the public sector) individuals engaged through a PSC assess their own employment status (to decide whether the off-payroll rules apply). Reform of the off-payroll working rules will shift the responsibility for this assessment from the worker’s PSC to the medium or large organisation from April 2020, as well as the responsibility for deducting the appropriate tax and National Insurance - where someone is found to be working in a manner akin to employment.
This is required by the time the contract starts or before the worker provides their services. This isn’t currently required for the public sector but will be from 2020 to both the private and public sectors. If the client doesn’t provide the determination or delays providing it (within 45 days), the liability of tax and NICs falls on the client - albeit they can later rectify it - and remains the client’s liability until a determination is made. The legislation intends for all parties to be made aware of the determination.
The original consultation document provided an illustration as to how this might work, which would mean all parties involved would be notified, and sought views as to whether this admin burden would be worthwhile in providing workers sufficient certainty on their tax position.
Who will the changes impact?
The legislation is expected to impact around 170,000 individuals working through their own company but who would be deemed employed if engaged directly.
According to the impact assessment there will be on-going savings for around 230,000 PSCs who will no longer have the requirements for determining status or the associated accounting burdens. It is expected that up to 60,000 engager organisations outside the public sector are in scope for the new rules.
The consultation document was also seeking views on whether there are circumstances in a breakdown of the determination not reaching all those involved in the chain. One example where this might happen is with offshore PSCs; will it always be possible for the client to identify the fee-payer? It should be noted that where a fee-payer is off-shore the liability sits with the nearest entity in the supply chain that is onshore.
What size of business has to consider this legislation?
Whilst I am pleased this burden won’t be passed to small businesses, there is some concern it might cause confusion, especially when as a payroll bureau we would need to ascertain whether a client should be processing some of their service contractors through a payroll.
The legislation defines the following:
For corporates:
If the small company’s regime set out in the Companies' Act applies, then you are considered small within the off-payroll working rules.
So if two of the following apply a company is not small.
- Annual Turnover: Not more than £10.2 million
- Balance sheet total: Not more than £5.1 million
- Number of employees: Not more than 50
Determining a company’s size will be based on financial year and will apply for the tax year following the filing date.
Non-corporates (not governed by the rules of the Companies Act):
i.e. sole traders, simple partnerships etc.
- Whether the rules apply will be based on turnover (£10.2 million).
The timing will be based on calendar year.
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