Government Updates – February 2020

Government Updates – February 2020

On 7th February, HMRC announced a significant change in the application of the changes to the off-payroll working rules. The new rules will now apply only to payments made for services provided on or after 6 April 2020. Previously, the new rules would have applied to any payments made to the PSC on or after 6 April 2020 irrespective of when the services were performed or the invoices were raised.

This was a common issue raised by many contractors and businesses in the industry; there were concerns over the practical application of the rules after the commencement of services, or possibly after the assignment was complete.

UK Government publishes review of changes to Off Payroll Working Rules Report 27th February 2020

Policy changes announced today also offer much needed clarity. The fact that all businesses now have a statutory obligation to confirm whether or not they are ‘small’ takes the onus off others in the supply chain, while confirmation on the timeline for disputes is also welcomed. Also, the rules will no longer apply to clients based wholly overseas, with the obligation to determine tax status in these instances remaining the contractor.

https://www.gov.uk/government/publications/review-of-changes-to-the-off-payroll-working-rules-report-and-conclusions

Overseas Clients

During the review concerns were raised about how the rules will apply where the client is overseas. The Government has listened to those concerns and will amend the legislation to exclude wholly overseas organisations with no UK presence from having to consider the off-payroll working rules. This means the existing rules for engagements outside the public sector will continue to apply to engagements where the client is wholly overseas, and the individual’s limited company will continue to determine the status of the individual.

 

IR35 – Off Payroll Working Rules April 2020

Following the introduction of IR35 reforms in the public sector in 2017, HMRC has confirmed that the new rules will now be extended into the private sector, effective 6th April 2020. These changes are not retrospective. IR35 rules were originally introduced in the UK in 2000, with the intention of ensuring that individuals who are working like employees but who operate via an intermediary, such as a personal service company (PSC), pay broadly the same tax and National Insurance Contributions (NIC) as an employee would. IR35 rules have, however, been largely ineffective as the PSC has had to ‘self-assess’ whether the rules apply. Consequently, HMRC estimate that there is widespread non-compliance which they have been unable to effectively tackle.

What is the proposed change to IR35?

The reform will place the responsibility for assessing whether IR35 applies onto the private sector end user (our clients) of the worker’s (our contractors) services, for all payments by medium and large businesses from 6 April 2020. Where it is concluded by the end client that IR35 applies, the fee payer (in this case Briggs Accountancy Services ) will become responsible for accounting for and paying the related tax and NIC, including the additional cost of employer’s NIC, to HMRC.

Small Company Exemption?

The new Off Payroll Working Rules will only affect medium and large private sector organisations, so “small” end clients are set to be exempt – the definition of which is based on the Companies Act 2006 definitions. However, from April 2020, based on criteria below, our Clients are deemed to be medium-large businesses and therefore will be responsible for carrying out an assessment to determine whether Limited Company contractors’ roles are inside or outside IR35 legislation. If your role is deemed to be inside legislation, you will be subject to PAYE and NICs deductions.

The new rules will only apply to medium and large businesses in the private sector who are the end user of the worker’s services and to the fee payer, if different, such as fee payers in the recruitment sector. The Government have indicated that they intend to use ‘similar criteria’ to that found in the Companies Act 2006 to define a medium-large business. Under current legislation this is broadly a business that has two or more of the following features:

  • a turnover of more than £10.2m
  • a balance sheet total of more than £5.1m
  • 50 employees or more

Making the status determination – “inside IR35” or “outside IR35”

From 6 April 2020, it will be our clients’ responsibility to determine whether the Off Payroll Working Rules apply, i.e. is this assignment “inside IR35”? You can refer to the HMRC guidance and the employment status for tax (CEST) tool. Although feedback Is varied, the CEST tool does give you a good steer of the approach taken by HMRC and the indicators that they are looking for. HMRC have confirmed that they are making enhancement to the CEST tool, these changes are expected to be delivered before the end of 2019.

When the Off Payroll Working Rules (“IR35”) apply

The off-payroll rules apply if as a worker you provide services to a client through an intermediary (your personal service company (PSC)) but would be classed as an employee if you were contracted directly with the client. Before 6 April 2020 it Is your limited company’s responsibility to decide your own employment status for each assignment.

6 April 2020, how the rules are applied will change. All public sector authorities and medium and large-sized private sector clients will be responsible for determining whether the rules apply – i.e. are you “inside IR35” or “outside IR35”? Where the private sector client is considered “small”, your limited company will remain responsible for deciding the contractor’s employment status and whether IR35 applies.

Assignments Outside IR35

If the client makes the status determination that an assignment is “outside IR35”, they must ensure that “reasonable care” was taken during the decision-making and that the decision itself is reasonable. If the client does not exercise reasonable care, the status determination statement will not be valid, and the client will be liable for the unpaid taxes. HMRC have confirmed that it will issue detailed guidance in late 2019, which will include further details on “reasonable care”.

 

Allison Briggs
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