New rules for off-payroll working, due to come into effect from 6 April 2020, are to affect approximately 20,000 agencies who provide workers to medium and large-sized organisations.
The off-payroll working rules have been in place since 2000 to ensure fairness between individuals who work in a similar way. They are designed to ensure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as other employees.
To increase compliance with the existing off-payroll working rules (IR35), medium and large organisations in all sectors of the UK economy will become responsible for assessing an individual’s employment status and determining whether the rules apply.
The reform does not introduce a new tax or apply to the self-employed, who are outside the scope of the existing rule. It was introduced in the public sector in 2017, and at Budget 2018 the Government announced that it would be introduced to other sectors from April 2020. Following a further consultation in Spring 2019, the Government has published its response to the submissions received, confirming the detailed design of the reform and the obligations on different parties.
The new rules will apply to engagements with medium or large-sized organisations in the private and third sectors, and will shift responsibility for operating the off-payroll working rules from the individual’s PSC to the organisation or business that the individual is supplying their services to. This includes responsibility for deciding whether the rules should apply and deducting the associated employment taxes and National Insurance contributions.
Up to 60,000 engager organisations outside the public sector are in scope of the reformed off-payroll working rules. The majority of large organisations, and a high proportion of medium-sized organisations, who engage with off-payroll workers do so through agencies.
One-off costs associated with the changes may include familiarisation with the changes, upskilling staff in making status determinations, and determining whether the rules apply to their existing off-payroll engagements. Ongoing costs could include making status determinations for any new off-payroll engagements, and maintaining a status disagreement process for off-payroll workers who seek to challenge their status determination.
Where the new rules do apply, the organisation, agency, or other third party paying the worker’s company will need to deduct direct income tax and employee NICs, and pay employer NICs. If you are a CECA member and are concerned as to how the new changes will impact your business, contact CECA Director of External Affairs Marie-Claude Hemming.