In the Budget in October the Government confirmed that it would introduce off-payroll working in the private sector.
The changes to IR35 that came into effect in April 2017 for the public sector will be extended to the private sector from April 2020. Responsibility for operating the off-payroll rules will be transferred from the individual to the organisation, agency or third party engaging the worker. Only medium and large organisations will be subject to this change.
HMRC have subsequently made further comment on the proposals. The reforms will not introduce a new tax but will tackle non-compliance with the off-payroll working rules introduced in 2000.
From April 2020, where an individual is engaged by a medium or large-sized business and works through a company, the business will become responsible for assessing the individual’s employment status. If the rules apply, the business, agency or third party paying the individual’s company will be responsible for deducting income tax and NIC through PAYE as for employees and paying employer NIC. Existing rules will continue to apply for engagements with small businesses. The definition of a ‘small business’ will be based on the Companies Act 2006 definition of a small company.
According to the UK's Companies Act 2006, a small company is defined as one that does not have a turnover of more than £6.5million, a balance sheet total of more than £3.26 million and does not have more than 50 employees.
The Check Employment Status for Tax (CEST) service is currently made available by HMRC to help businesses determine whether the off-payroll working rules apply. HMRC state that they will continue to work over the coming months to improve CEST and associated guidance before the reforms come into effect.
HMRC will be publishing a further consultation early in 2019 to seek views on the detailed operation of rules in the private sector. We will keep you updated of developments so that you can talk to those clients potentially affected.