20th March 2019

HMRC has opened up a 12-week consultation for the proposals to extend the IR35 ‘Off-Payroll’ working rules to the private sector from April 2020. Since their announcement at the 2018 Budget, controversy has followed the new rules. This move allows for individuals and organisations to prepare for the changes.

The IR35 legislation applies in situations where a worker would be treated as an employee or an office holder of a company, if their own ‘personal service company’ did not exist. These rules ensure that workers who should have been treated as employees will broadly pay the same amount of income tax and national insurance contributions as regular employees.

The government department states that the consultation is intended to provide organisations and off-payroll workers with greater certainty around how the changes to off-payroll working rules will operate from 6 April 2020, and to clarify the obligations and responsibilities of the parties involved in the labour supply chain.

Following a previous consultation, HMRC announced that smaller organisations will not have to determine the employment status of their off-payroll workers. Whilst an exact meaning of what constitutes as a ‘small company’ has not yet been defined, our previous article details that a business will be classified as small if it meets any of the two following tests:

  • An annual turnover of £10.2 million or less;
  • 50 employees or fewer on average; or
  • Assets worth no more than £5.1 million

HMRC stated that they are seeking views on several topics to help inform final legislative proposals for IR35 rules. These include the definition of the smallest businesses that will be exempt; the responsibility of each party in the labour supply chain; and addressing status determination disagreements.

Lee Muter, employment taxes partner at UNW, commented on the projected new regulations: “The proposed changes represent the biggest tax amendment to engagement of labour in a generation. The planned new rules, if adopted in full-form from the consultation, will have wider-reaching implications for employers than tax. They will also have to know more about their supply chain, and potentially suffer penalties and tax liability if any part of the chain does not conform with the new regulations.”

“At its core, the changes revolve around the tricky process of determining employment status, and the potential to get this wrong is very high.  I am already seeing employers asking for advice in how to prepare for the changes, and I would advise those affected to start thinking through the implications.”

The consultation will be open to responses until 28 May 2019 at 11:45pm.

For more information on any employment tax related matters please contact either: Lee Muter, Employment Taxes Partner, on 0191 243 6089 or at leemuter@unw.co.uk; or Rebecca Kemp, Employment Taxes Consultant, on 0191 243 6070 or at rebeccakemp@unw.co.uk

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