Off-payroll working in the private sector
28 January 2019
Intermediaries legislation (commonly referred to as IR35) was introduced in 2000 as a method of subjecting the pay of individuals to PAYE Income Tax and Class 1 NIC who would, if not for the intermediary they were working through, be employees.
The responsibility for assessing each contract of work lay with the individual working through the intermediary. An Intermediary could be the Personal Service Company (PSC) of the individual delivering the work, but could also be, another person or a partnership – the key issue being that they would be an employee if they were not working through an intermediary.
In 2017, legislation in this space was introduced for individuals working via an intermediary for a public sector body, that placed responsibility for assessing the contract of these workers on the fee payer. Referred to as off-payroll working, it was widely believed that this would also be extended to private sector engagements at some point.
At Budget 2018, following earlier consultation, the government did, as anticipated, announce reforms to the off-payroll working rules in the private sector. The rules seek to ensure that individuals who work like employees but through an intermediary to a client in the private sector will also operate in a similar manner to that operated in the public sector.
From April 2020, where an individual is engaged by a medium or large-sized business and works through an intermediary, the engaging 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 NICs through PAYE as for employees and paying employer NICs. Full details of this latest policy delivery have yet to be finalised and consultation is due to be published in the coming months.
The employment status of the individual is a key element of consideration as the rules do not apply to the genuinely self-employed. The Check Employment Status for Tax (CEST) service is available to help the engager to determine whether the off-payroll working rules apply. HMRC plan to work with stakeholders over the coming months to improve CEST and associated guidance before the reforms come into effect.
A briefing sheet was published by HMRC as part of Budget 2018. The 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.
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CIPP comment We are waiting for the next stage of consultation to be published which will seek views on the detailed operation of rules in the private sector and although there are still unknowns about the reforms, there is much that we do know as it appears to be the intention that this should broadly be following the path of the public sector reforms. Although the CEST tool will be evolving, getting to know it in its current form could be beneficial. April 2020 is not far away and we would urge employers, if you haven’t already, to be preparing and to be having conversations with internal stakeholders and contractors about the processes that will need to be put in place. Good communications are going to be key to a successful delivery of these latest reforms. |
Private sector lessons from BBC IR35 off-payroll working rules implementation
Pinsent Masons wrote an interesting article at the end of last year which discusses the valuable lessons for the private sector regarding the BBC’s engagement with PSCs (Personal Service Companies).
It is worth a read as the BBC's experience will be relevant to many large and medium-sized businesses both as a lesson as to how difficult it can be to apply the new rules and a warning as to what can happen if the implementation goes wrong.
The article also reiterates that although April 2020 seems a long way away, for businesses with large numbers of freelancers engaged through PSCs, establishing systems to ensure compliance with the new rules will be a major exercise and planning needs to start now. Many large businesses have become reliant on using PSCs as off-headcount and off-payroll workforce and changing the cultural assumptions will take time.
The article can be accessed here.