From 6 April 2020, the off-payroll working rules that apply where the end client is a public sector organisation are being extended to the private sector.
The amended rules will apply where services are provided via an intermediary, such as a personal service company, to an end client which is a medium or large private sector organisation. The rules bite if, ignoring the personal service company, the worker would be classed as an employee of the end client. Prior to 6 April 2020, the personal service company had to operate the IR35 rules and work out the deemed payment. However, from 6 April 2020, responsibility for working out whether the rules apply will shift to the end client and, where they do, the fee payer must deduct tax and National Insurance from payments made to the worker’s personal service company.
Where the end client is a small private sector organisation, the existing IR 35 rules apply. A private sector organisation is not small if at least two of the following apply:
• turnover of more than £10.2 million;
• balance sheet total of more than £5.1 million;
• more than 50 employees.
To prepare for the changes, HMRC recommend that medium and large private sector companies should:
• look at their current workforce (including those engaged through agencies and intermediaries) to identify those individuals who are supplying their services through personal service companies;
• determine whether the off-payroll rules will apply for any contracts that extend beyond 6 April 2020 (HMRC’s Check Employment Status for Tax (CEST) tool can be used to determine a worker’s status);
• start talking to contractors about whether the off-payroll rules apply to their role; and
• put processes in place to determine if the off-payroll working rules will apply to future engagements. These may include assigning responsibility for making a determination and determining how payments will be made to contractors who fall within the off-payroll working rules.
Workers affected by the changes should also consider whether it is worth remaining ‘off-payroll’.
If you are medium or large private sector organisation engaging workers who provide their services through an intermediary, such as a personal service company, or if you are a worker providing services via an intermediary, speak to BFMS to understand what the changes to the off-payroll working rules mean for you.