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New off-payroll tax rules will apply to the private sector from 2020: are you ready?

With just a few months until off-payroll working tax rules apply to the private sector, tax specialist Fiona Phillips looks at the detail of the government’s recently unveiled draft legislation  

In March this year, the Government announced that the rules relating to off payroll working, which currently apply to the public sector, would be extended to workers in the private sector. Now, the government has published draft legislation, which confirms that the rules will take effect from 6 April 2020.

Under the current rules, known as IR35, the responsibility for determining the employment status of a contractor, who provides their services via a personal services company, rests firmly with that company; so too does the responsibility for paying tax and NICs.

From 6 April 2020, the responsibility for determining tax status will lie with the business, which is the end user of the supplies; the responsibility for accounting for employment taxes (including NICs) will also rest with the organisation that pays the personal service company, which could be the user of the services or an intermediary agency.

What does this mean for your business?

  • It has been confirmed that the new rules will only extend to medium and larger organisations in the private sector. The changes will not apply to contracting companies if they are “small” and meet at least two of the following criteria: – have a turnover of less than £10m per annum; a balance total less than £5.1m; and, have fewer than 50 employees.
  • Businesses in the regime will need to put in place procedures for determining the employed or self-employed status of the contractors working through a personal service company. Determining status can be difficult: HMRC has taken several cases to tax tribunal involving high profile contractors who have been held to be self-employed (and therefore outside of this regime). HMRC has the Check Employment Status for Tax (CEST) service but acknowledges that this needs to be improved.

It is the responsibility of the business to ensure that all parties in the supply chain (ie agencies, intermediaries and the personal service company) are aware of the status determination made by the end user.

  • If your business will be liable for tax and NICs on fees to personal services companies, then it will need to put in place internal processes in order to collect the tax and meet the compliance requirements.

 Contract via a personal service company? If the contract is with a small business then the old IR35 rules will apply, with the responsibility for determining status, PAYE and NICs accounting remaining with the personal service company. Otherwise, the new rules will apply.

With time to prepare for the changes, our multidisciplinary team of employment law and tax specialists can help you with:-

  • reviewing contractual arrangements;
  • determining employment status; and
  • advising on HR issues.

Get in touch with our friendly team today by calling 01482 325242 or email

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