Reform of off-payroll working rules (IR35) continues

30 October 2018

A fact sheet has been published by HMRC to summarise the changes that will come in from 6 April 2020 for medium and large private sector businesses.

HMRC estimates the cost of non-compliance to the exchequer will reach £1.3 billion a year by 2023-24 and by continuing with these reforms, that will require private sector businesses to assess an individual’s employment status, compliance will increase.

The reforms will bring the private sector in line with the public sector, where HMRC estimates the reform has already raised £550 million in income tax and NICs in its first year of operation.

The genuinely self employed will not be affected by these reforms and the existing rules will continue to apply to the 1.5 million smallest businesses.

What does the reform mean for businesses?

From 6 April 2020, medium and large businesses will need to decide whether the rules apply to an engagement with individuals who work through their own company.

Where it is determined that the rules do apply, the business, agency, or third party paying the worker’s company will need to deduct income tax and employee NICs and pay employer NICs.

Check Employment Status for Tax (CEST) service

HMRC developed the CEST to help businesses determine whether the off-payroll working rules apply. HMRC will continue to work with stakeholders to improve further the CEST service and guidance before the reform comes into effect.

HMRC continues to work with stakeholders to identify improvements to CEST and wider guidance to ensure it meets the needs of the private sector - enhancements will be tested with stakeholders, operational and legal experts before the reform is implemented.

HMRC assurance

The reform is not retrospective and as it has in the public sector HMRC will focus its efforts on ensuring businesses comply with the reform rather than focusing on historic cases.

HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform and businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years.

The reform will not stop anyone working through a company if that suits them, and does not apply to the self-employed.

The future

The government will continue to monitor tax receipts as data becomes available.

A further consultation on the detailed operation of the reform will be published in the coming months. This consultation will inform the draft Finance Bill legislation, which is expected to be published in Summer 2019.

CIPP comment

The next meeting of the HMRC IR35 forum is scheduled for the 21 November 2018. Please email CIPP senior policy and research officer Samantha Mann at [email protected] with any comments or concerns that you wish to share on your experience with off-payroll working reforms.

Thank you