People walking across a suspension bridge
Consultation: Off-payroll working in the private sector
Susan Ball
12/06/2018
People walking across a suspension bridge
HMRC issues a consultation on the taxation of consultant and contractors, and you should start preparing for a change in the rules.

The government looks set to change the way off-payroll workers in the private sector are taxed. You have until 10 August to contribute to a consultation on how that legislation should be introduced.

Off-payroll workers include:

  • former employees or partners engaged as consultants
  • individuals engaged on significant one-time projects
  • people working through Personal Service Companies (PSCs) or Limited Liability Partnerships

The problem with IR35

The proposed new legislation is similar to changes implemented in the public sector in recent years.

HMRC believes the existing IR35 legislation "is not working effectively, and non-compliance is widespread". It estimates that only 10% of PSCs that should apply the legislation actually do so. 

Although we don’t know when the new legislation will be introduced, the timing of the consultation makes a commencement date of April 2019 possible.

How previous IR35 changes affected the public sector

Public authorities are now responsible for determining the status of workers engaged through PSCs or other intermediaries.

They are also now obliged to deduct income tax and employee National Insurance Contributions (NICs), and account for employer NICs in respect of payments to intermediaries, where the worker would have been an employee if engaged directly.

HMRC commissioned independent research into how public sector organisations implemented the new rules and procedures.

Only half of public authorities surveyed said they found the rules easy to comply with.

A considerable proportion found it hard to

  • familiarize themselves with the new rules
  • use HMRC’s Check Employment Status for Tax service
  • resolve disputes with workers and agencies.
  • Also, contractors were unhappy because switching off-payroll contractors to on-payroll suggests that they should have been accounting for tax under IR35 previously.

    How to prepare for the new legislation

    Introducing procedures to deal with this legislation will involve many stakeholders across the organisation, such as HR, finance, legal, procurement and payroll.

    Between these functions, firms will need to:

    • identify off-payroll workers
    • identify those who currently work through intermediaries
    • review the processes they have for determining if individuals are employed or self-employed – if you don’t have any, start with these as soon as possible
    • consider specialist advice if there is any uncertainty about the status of your workforce
    • review procurement processes to consider the impact
    • review engagement processes which are not dealt with through procurement
    • amend systems, process maps, internal guidance, contracts and policies to demonstrate that reasonable care has been exercised
    • keep a clear audit trail for presentation to HMRC in the event of a review
    • assess the costs of implementing the proposed changes on existing and future contracts; consider renegotiating rates to make up for the shortfall.

    Above all else, the message is clear – start to plan now, as it will undoubtedly make things easier when the new rules are determined.

    For more information please contact Susan Ball or your usual Crowe contact.

    Contact us

    Susan Ball
    Susan Ball
    Partner, Head of Employers Advisory Services
    London