Crowe will be able to assist in helping organisations review their engagements with off-payroll workers, by producing detailed employment status reports which help minimise risk where the position is not clear.
The government have now published guidance regarding the proposed IR35 changes which will be implemented on 6 April 2020.
This guidance confirms that the proposed changes to the legislation will be go ahead next spring, in an effort to curb what has been viewed as excessive non-compliance to the current regulations. It has also made it clear that even where workers are engaged through an agency it will be necessary for the end client to take a view on the status of the worker.
For private sector companies, it is currently the responsibility of any off-payroll workers to assess their own employment status when engaging with their relevant client company.
From 6 April 2020 onwards, all public sector bodies, and medium and large-sized private sector organisations, will be responsible for determining the status of all off-payroll workers whom they engage. Charities, schools and colleges and professional practices which fall within the above groups will also need to apply these new rules.
If you meet the criteria to be a small private sector company, then the new rules will not apply to you. You need to meet two of the following criteria to be classed as a small company for these purposes:
Unincorporated bodies only need to fail the turnover test to be 'not small' for these purposes.
You should identify any off-payroll workers whom you currently engage and review your engagement arrangements with them as a matter of priority.
If the rule changes apply to your organisation, you will be responsible for determining the employment status of any off-payroll workers whom you engage. Unfortunately, there is no simple definition as to what makes an ‘employee’ for tax purposes, so you should look at the elements of their engagement. For example, does the worker have the unfettered right to send a substitute if they are unable or unwilling to carry out their work? Do they have substantial control over how they are expected to complete their work? Analysing their engagements in detail will help you to establish a decision regarding their status and the recent IR35 tax tribunal victory for HMRC makes it clear how important this is.
In summary you must:
If you are the fee payer to any off-payroll workers, then you will be required to deduct tax and National Insurance contributions from their pay from 6 April 2020 onwards if you establish their engagement status to be one of employment. The employers NIC and any resulting apprenticeship levy payments will represent an additional cost for you.
So you will need to:
It is important to note that:
Next month we will tell you more about how to do the relevant calculations and correct any errors.
In July 2019, the UK government published the draft legislation which forms the basis of the reform of off-payroll working in the private sector.
This confirms that the proposed IR35 changes will come into effect from April 2020 to bring the private sector in line with the current public sector arrangements in place since 2017.
The assessment the employment of workers engaged through intermediaries will now fall on the engaging organisation.
Small businesses* will be initially exempt from operating these new rules.
Businesses involved will need to issues a written Status Determination Statement (SDS) and then pass down to everyone involved in the engagement.
If the engaging business determines that IR35 applies, it must deduct PAYE and National Insurance from payments for the worker’s services
*A small company is defined as meeting two out of three of the following criteria: A turnover of less than £10.2 million; balance sheet of less than £5.1 million; or fewer than 50 employees, while an incorporated business need only exceed the turnover limit to be considered ‘not small’.
Having identified all key stakeholders and off-payroll workers in your organisation, this will feed into the next step of a two-fold assessment of the organisations’ risk appetite measured against the business needs.
For those who are risk averse, the above outlines several alternatives to engaging off-payroll workers caught by the new rules, which may involve changing your business model.
Employers should evaluate their business and operational strategies in light of how exposed they are to these reforms and their future business needs – do you need to conduct a GAP analysis, or have internal discussions with key stakeholders?
If you wish to continue engaging with PSCs, then it will become the engager’s responsibility to perform and evidence an employment status check on the individual. Employment status is a subjective area based on case law rather than legislative tests and as a result, there is an embedded risk.
Ultimately, what is right for your organisation going forward may differ from others, and therefore it is essential you take the time now to discuss these effects head of 06 April 2020.
HMRC’s consultation on off-payroll working closed on 28 May 2019 and will inform the draft legislation on this area which is due to be published in the coming months.
While we wait for the draft legislation, an important first and proactive step is to identify key stakeholders and all off-payroll workers. This includes all current engagements with intermediaries including personal service companies and agencies that may supply labour to your organisation.
Completing these tasks early on will enable you to:
Evaluate how exposed is your organisation.
Do you mostly engage off-payroll workers in a particular business functions e.g. IT? Can this function be fully outsourced instead?
Are these workers engaged regularly?
Communicate potential impacts to key stakeholders ensuring they are part of future discussions on this topic.
Who are the affected populations?
To feel comfortable with the position, do you need to conduct an employment status review on any individuals or seek specialist advice?
Give yourself time to make and implement any changes needed ahead of 6 April 2020.
Including stage two which will be made available in the next issue of Employers Digest, our regular employment taxes newsletter.
Note: that any changes to off-payroll worker status may have an employment law impact as well as a tax and NIC implication, and so you should take all considerations into account.
HMRC believes the existing IR35 legislation "is not working effectively, and non-compliance is widespread". They estimate that only 10% of personal intermediaries that should apply the legislation actually do so. As a result, the government announced in the Autumn Budget 2018 that they will reform the off-payroll working rules (IR35) in the private sector. Under the new rules, the responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker.
Broadly speaking, the reforms will require medium and large private sector businesses impacted to identify and review the employment status of all workers engaged through personal service intermediaries, including those workers provided via an agency or third party, and potentially treat them as a deemed employee for tax and NICs purposes from 6 April 2020.
Importantly the steps involved in becoming compliant in this area are likely to mirror the 2017 reforms of off-payroll working in the public sector, and for many organisations these changes required sometime to implement.
Based on our experience, there are practical steps that you can take now with the knowledge that these new rules will take effect on 6 April 2020 and we will provide guidance on each of these over the next 12 months with you.
Right now, you should consider:
*View Off-payroll working rules from April 2020 consultation.
IR35: your journey to April 2020