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IR35: Government announces review into off-payroll working

View profile for Charlotte Holman
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IR35: Government announces review into off-payroll working

The government has announced that it is launching a review into the implementation of changes to the off-payroll working rules.

In an official statement, it said, ‘the review will determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms which are due to come into force in April 2020. As part of this, the review will also assess whether any additional support is needed to ensure that the self-employed, who are not in the scope of the rules, are not impacted.’

The intermediaries legislation, known as IR35, applies where an individual works through an intermediary such as a limited company. These limited companies are also known as a Personal Services Company or PSCs. PSCs are used to provide services to an end-user client, when in reality they would be classed as an employee of that end-user client if the intermediary were not in place.

HMRC has referred to these workers as ‘disguised employees’. These individuals are not really self-employed and seek to avoid paying employee income tax and national insurance contributions.

Last July, the government published draft legislation which requires medium and large companies in the private sector that contract with PSCs for the provision of workers’ services to account for tax and national insurance through PAYE. This is in the same way as the public sector has been required to do since April 2017.

At present, the rules in relation to the private sector deem that, where a client uses the ‘services’ of a contractor, it is the PSC that is responsible for assessing the individual’s employment status. If the individual falls within the scope of IR35, then the PSC is liable to pay the unpaid tax.

Given that HMRC can look at previous tax years, if the PSC makes an incorrect assessment of the individual’s status, then it could potentially face a hefty tax bill where deductions have not been made.

In April 2017, the rules changed in the public sector making it the responsibility of the public authority (the end-user client) to assess the individual’s status. The reforms set to come in, in April 2020, look to make changes to the private sector. This means that responsibility for determining an individual’s status (whether they are a worker and should be subject to PAYE, or whether they are self-employed) will now sit with the party next to the PSC (usually an agency or end-user client).

The government’s review will run until mid-February and will consider whether any further steps are required to be taken, to ensure that the reforms are implemented smoothly.

The review is proposed to include a series of roundtable discussions with contractor groups and businesses with a view to considering concerns which are raised during the process. The review is likely to be welcomed by those affected by the proposed changes. There are doubts, however, as to how useful it will actually be given the short timeframe the government has given for its completion.

There has been nothing said about delaying implementation of the reforms. Therefore, businesses who contract with individuals on a self-employed basis are recommended to undertake a thorough review of their contractual arrangements, to ensure they are ready for the changes when they come in.

The likely value and impact of the review is also in doubt. This is due to rumours circulating that HMRC has said that the review will not result in changes to the draft legislation. Time will tell.

If you would like advice on any IR35 changes then please contact our specialist Employment team. I am based in our Basildon office and can be contacted on 01268 244150 or charlotte.holman@birkettlong.co.uk.

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