By Nick Hall
THE government announced in the 2018 Budget that the reform to the off-payroll working rules (commonly known as IR35), introduced in the public sector in April 2017, will be extended to the private sector from 6 April 2020 but with some additional reform.
The IR35 regime was introduced by HMRC to crack down on a form of perceived tax avoidance whereby individuals would seek to avoid paying employee income tax and National Insurance contributions (NICs) by working through an intermediary, usually a professional services company (PSC).
Under the current regime, it is the responsibility of the intermediary to determine whether the rules apply and, if so, to account for income tax and NICs. No obligations are placed on the client as the end-user.
The new rules will apply to medium and large-sized private sector clients (as defined in the Companies Act 2006) that engage individuals who provide their services via an intermediary. It is proposed that the client, who is required to determine the status of the worker, should provide the status determination alongside its reasoning to both the intermediary and directly to the worker.
Given the impact that these reforms will have on medium to large-sized companies in the private sector, it will be important that such organisations take advantage of the time available before April 2020 to prepare.
Organisations which will be affected by the reforms should consider taking the following actions:
- Identify and review their current off-payroll engagements including PSCs and agencies that supply labour to them;
- Review current arrangements for the use of contingent labour;
- Put in place comprehensive processes for ensuring consistent decisions about the employment status of workers engaged by the company and for dealing with any disagreements over status determinations; and
- Review internal systems such as payroll software and on boarding policies to see whether any changes need to be made.
Businesses should conduct an audit of their off-payroll labour force, giving careful thought to what each individual does in practice and what kind of contract they are engaged under. Legal advice should be sought in determining the employment and tax status of workers where this is not clear.
For more information on these changes and how your organisation may be affected please contact Nick Hall,Employment Law Partner on 01604 463375.