Compass on rocks

Autumn Budget 2018: Reform of the off payroll private sector

Compass on rocks

The reform to off-payroll working rules brings the private sector in line with the public sector. Broadly speaking, the rules will require private sector businesses impacted to identify and review the employment status of all workers engaged through personal service intermediaries (personal service companies or PSCs). These include workers provided via an agency or third party and treat them as a deemed employee for tax and NICs purposes.

The government will reform the off-payroll working rules (IR35) in the private sector. Under the 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.

The good news is to give people and businesses time to prepare, this change will not be introduced until April 2020 and 1.5 million small businesses will be exempt, minimising administrative burdens for the vast majority of engagers.

Along with a further consultation on the detailed operation of the reform, which will be published in the coming months, the consultation will inform the draft Finance Bill legislation, expected to be published in summer 2019. HMRC will also provide support and guidance to medium and large organisations ahead of implementation.

HMRC estimates the cost of non-compliance to the exchequer will reach £1.3 billion a year by 2023-24. The reform will bring the private sector in line with the public sector, where evidence suggests compliance has improved since the reform was introduced in 2017. HMRC estimates the reform has raised £550 million in income tax and NICs in its first year.

In summary 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.
  • The government has listened to business and will build on learnings from the introduction of the reform to the public sector. As a result, medium and large businesses will have until April 2020 to implement the changes; existing rules will continue to apply to the 1.5 million smallest businesses.
  • HMRC has developed the Check Employment Status for Tax (CEST) service to help businesses determine whether the off-payroll working rules apply. HMRC will continue to work with stakeholders to improve further CEST and guidance before the reform comes into effect. HMRC has confirmed enhancements will be tested with stakeholders, operational and legal experts before the reform is implemented.

HMRC will provide extensive support and guidance to help businesses implement the off-payroll working rules to ensure they apply them correctly, and will ensure the guidance is appropriate to the needs of the private sector, which are more diverse than those of the public sector.

What’s clear from the public sector roll out in April 2017 is that planning, training and introducing new processes is key to enabling engagers to implement this change effectively - the earlier they start the better!

Contact us

Caroline Harwood
Caroline Harwood
Partner, Head of Share Plans and Employment Tax