HMRC has, this morning, published further information as to the forthcoming off-payroll rules, known as IR35, and the changes to the operation of these from 6 April 2020.
It has been confirmed that although these rules, which will affect medium and large private sector businesses, are still intended to come into force on 6 April 2020, they will only apply to payments made for services which are delivered on or after that date. Before today, the rules set out that the time at which the services were delivered would have been irrelevant, the rules would have applied to any payments made on or after that date.
Application of the change
Businesses have consistently raised concerns during recent months as to the application of the change in the rules, in particular raising queries as to the payments the rules are intended to affect and from what date. HMRC confirms that ‘the government has listened and taken action early to give businesses certainty and more time to prepare to ensure the smooth and successful implementation of the reforms..’.
Although this is good news for those businesses concerned, preparations should still be underway as to future IR35 compliance, ensuring as a minimum that appropriate contractual arrangements are in place post 6 April 2020, implementing processes to make IR35 determinations and to deal with any challenges made to these, as well as reviewing and updating internal policies and procedures to relflect the forthcoming changes and to ensure consistency in approach to the engagement of contractors.
Personal service companies
Off-payroll working rules were introduced in 2000 to address a form of perceived tax avoidance where individuals could seek to avoid paying employee income tax and national insurance contributions (NICs) by providing their services to clients through an intermediary, such as a personal service company (PSC).
To increase compliance with IR35 from 6 April 2020, all medium and large private sector businesses which engage individuals through intermediaries will be responsible for determining if the individual should be considered an ‘employee’ for tax purposes. If an individual is an ‘employee’ for tax purposes the company will be responsible for income tax and NICs. This brings the private sector in line with the public sector which has been subject to these IR35 determination rules since April 2017. It was estimated by HMRC that the public sector reform raised £550 million in income tax and NICs in the first year.
HMRC has stated that the formal publication of a review into the implementation of changes to the off-payroll working rules is due to conclude in February.