A must read for contractors – this directly affects you! 
This morning, HMRC launched its latest consultation for proposals into how off-payroll working rules will work starting from April 2020. This latest change is going to be expanded to include the private sector. HMRC has said this will ensure the proposed processes will suit the hugely diverse private sector alongside those working in the public sector, who are already operating under this legislation. HMRC says that the consultation “seeks to understand how best to implement the reform in the larger and more diverse private sector”. 
 
We are glad to hear that HMRC is consulting more on the issue, and not just steam rolling ahead! 

Background 

Off-payroll working rules, i.e. IR35, were brought into effect to ensure that contractors who work similarly to employees pay roughly the same level of tax as those that are employed, regardless of the structure through which they work. Off-payroll rules apply to those who provide services to a person or entity, i.e. the client, through an intermediary – most often a Personal Service Company (PSC), also known as a limited company. 
Public sector noncompliance was addressed in April 2017, from which it was decided that public authorities would make decisions whether workers would have been regarded for the same level of income tax and National Insurance Contributions (NICs) as employees. The reform was also the catalyst for enforcing the public authority or agency that pays the worker’s wages to be responsible for accounting for and paying income tax and NICs to HMRC under PAYE, rather than the worker. 
 
After receiving 275 responses from various stakeholders, the Chancellor announced that reforms will be rolled-out into the private sector in April 2020, so as to increase compliance within the existing off-payroll working rules and to bring the private sector in line with the public sector. This was declared in the 2018 budget

What does the consultation cover? 

The reform happening in April 2020 will take the off-payroll rules for public sector workers as a starting point. Clients, i.e. those who have contracted the workers to provide services to them, will be required to determine the workers’ employment status. Following on from this, the clients will then be required to make deductions for income tax and NICs, and pay any employer NICs. Businesses in the private sector that think they may be affected by this upcoming change should familiarise themselves with the current legislation outlining this rule, which can be found here

What does it mean for contractors in the private sector? 

HMRC has confirmed that the reform does not introduce any new tax, and the smallest organisations will not have to determine the employment status of off-payroll workers, in line with views put forward by stakeholders during the previous consultation. 
 
To qualify as a small business, at least two of the following conditions must be met by the business in a year: 
 
- The annual turnover does not exceed £10.2 million 
- The balance sheet total does not exceed £5.1 million 
- There are no more than 50 people employed within the business 
 
Medium and large business have over a year to prepare, as the new rules do not come into effect until 6th April 2020. HMRC has said that it will work with tax exports and businesses to explore more effective ways in which the Check Employment Status for Tax (CEST) can be used, and any enhancements will be available to users of CEST before the 6th April 2020. 
 
The government has said that it is “committed to learning from the public sector reform”, and that it has recognised that there will be some changes required in the regulation for private sector organisations – the new legislation for IR35 in the private sector won’t just be a ‘copy and paste’ job from the current public sector rules. 
 
Respondents have until 28th May 2019 to provide feedback on this latest consultation. 

Need further advice? 

Get in touch with us if you'd like to discuss how this impacts you. We are IR35 experts and can help you with any questions you have about existing legislation, or indeed future changes such as those outlined in this post. 
 
 
 
 
Written by: 
 
Nicola J Sorrell - 
Effective Accounting 
 
Founder | Xero Champion | IR35 Expert 
Tagged as: CEST, HMRC, IR35
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