18/02/2020

Off-payroll Workers

To increase compliance with the existing off-payroll working rules (often known as IR35), medium and large organisations in all sectors of the economy will become responsible for assessing the employment status of individuals who work for them through their own limited company.

From 6 April 2020, medium and large organisations outside of the public sector will now need to decide whether the rules apply to an engagement with individuals who work through their own company. All public sector organisations will continue to make determinations as now. Since 6 April 2000, contractors who use a personal service company or PSC to provide services to clients have been responsible for deciding whether the IR35 rules apply to make then a deemed employee. There is to be a shift of responsibility.

The intention is to ensure that fees are treated as employment income for tax and NIC where they concern:

• Personal services provided to a client by an individual (contractor), through their intermediary (PSC)

• An individual who would have been an employee if they had contracted directly with the client

The reform does not apply to small businesses, as defined by company law. Companies satisfying two out of three of the following tests: LLPs and unincorporated businesses, only the Turnover test applies:

Turnover: £10.2m             Balance Sheet total: £5.1m        Average number of employees: less than 50

Contractors working for small businesses will continue to make their own determination regarding employment status.

Where the rules do apply, the organisation, agency, or other third party paying the worker’s company will need to deduct income tax and employee NICs and pay employer NICs.

This applies to services provided, not payments, on or after 6 April 2020.

The rules also apply to overseas companies who are expected to use agencies for payroll services.

HMRC have developed CEST, a ‘Check Employment Status Tool’ which can be found at https://www.gov.uk/guidance/check-employment-status-for-tax and will produce a Status Determination Statement to help organisations determine if the rules apply. There must also be a disagreement process in place.

The House of Lords Finance Bill Sub-Committee are currently scrutinising the draft Bill and invite contributions up until 25 February.