Engagement of Off-Payroll workers – changes from 6 April 2020
From 6 April 2020, through an extension of the provisions of IR35, medium and large sized businesses will become responsible for deciding the employment status of workers, particularly those operating through intermediaries.
For the purposes of this legislation, medium and large sized enterprises are those that meet 2 or more of the following conditions:
- they have an annual turnover of more than £10.2 million
- they have a balance sheet total of more than £5.1 million
- they have more than 50 employees
There are also rules which cover connected and associated companies. If the parent of a group is medium or large, their subsidiaries will also have to apply the off-payroll working rules.
If you meet the conditions above you must start applying the rules when the changes come into force on 6 April 2020. From that date you will need to decide the employment status of a worker, you must do this for every contract you agree with an agency or worker. Additionally, you’ll need to:
- pass your determination and the reasons for the determination to the worker and the person or organisation you contract with;
- make sure you keep detailed records of your employment status determinations, including the reasons for the determination and any fees paid to the worker; and
- have processes in place to deal with any disagreements that arise from your determination
If you are also the fee-payer in respect of the worker and the off-payroll working rules apply, you will need to deduct and pay tax and National Insurance contributions to HMRC.
Small-sized enterprises in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.
You must take reasonable care when you make a determination about the employment status of a worker. Failure to do so will result in the worker’s tax and National Insurance contributions becoming your responsibility.
Who to tell about your determination
From 6 April 2020, you must provide the worker and the agency, or other organisation you contract with, your determination. You should do this whether your determination shows that the off-payroll working rules will apply or not and as noted above you must provide reasons for your determination.
You will hold the liability for tax and National Insurance contributions until you tell the worker, and the person you contract with, of your determination and the reasons for it.
If the working practices of the engagement change or you negotiate a new contract with the worker, you need to make sure that you re-check the rules to see if they still apply.
For medium and large sized organisations within scope of the above changes, the new IR35 provisions represent a significant tax compliance challenge.
Complicating the tax compliance challenge for clients further is a Government review of the implementation of the new IR35 rules, announced on 7 January 2020 and due to be completed in mid-February. All indications are that the review will consider aspects of the implementation of the new provisions rather than the proposed law itself.
IR 35 review – urgent action
As an immediate first step, we would recommend a detailed review of arrangements that are potentially within scope well ahead of the legislation coming into effect so that the appropriate determinations can be issued before any payments are made to the worker or the intermediary post 6 April 2020.
We expect HMRC, when reviewing tax returns, to pay particular attention to expenses classified as ‘Consultancy’, ‘Legal and professional’, ‘Accountancy services’, ‘IT services and support’, ‘Subcontract’, ‘Cleaning’ and ‘Temporary staff’. These expense categories may trigger a costly and time consuming investigation by HMRC. We can provide assistance and guidance with regards to the new rules and provide guidance on measures emerging from the Government review.
Our Outsourced Finance and Corporation Tax teams should be happy to provide any assistance you require in respect of the above.
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.