At Budget 2018, the government announced that it would be extending off-payroll working rules to those operating in the private sector in an effort to address non-compliance.
The off-payroll working rules (commonly known as IR35) ensure that individuals who work like employees pay broadly the same employment taxes as directly engaged employees, even where they work through their own company. These rules only affect people working like employees and through a company; they do not apply to the self-employed.
From April 2020, where an individual is engaged by a medium or large-sized business and works through a company, the 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 National Insurance contributions through Pay As You Earn as for employees, and paying employer NICs.
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.
HMRC recommends using the Check Employment Status for Tax (CEST) service to determine whether the off-payroll working rules apply. However, a recent tribunal case overruled a finding by the CEST tool, suggesting that it is not always accurate.
HMRC has stated that it will continue to work with stakeholders over the coming months to improve CEST and associated guidance before the reforms come into effect.
A further consultation is expected early next year to seek views on the detailed operation of IR35 rules in the private sector. HMRC also plans to provide a package of education and support to businesses in the run up to April 2020 to help them implement the rules.
