IR35: further employer compliance to come

Changes to the ‘off-payroll’ working (IR35) rules in the private sector

Budget 2018 announced changes to the ‘off-payroll’ working (IR35) rules in the private sector. These changes, subject to consultation, are due to take effect from April 2020 and will impose a significant compliance burden for some employers engaging individuals who work via a personal service company (PSC). The IR35 regime exists to ensure that where someone works for a client via an intermediary, such as a PSC, they do not thereby avoid being taxed as the client’s employee. In the public sector, responsibility for deciding if IR35 rules apply lies with the party engaging the worker. From 6 April 2020, this responsibility will also extend to the private sector - but only to ‘medium’ and ‘large’ businesses. When engaging someone working through a PSC, these businesses will have to decide if IR35 rules apply. If so, they must deduct income tax and employee National Insurance contributions (NICs) and are liable for employer NICs. ‘Small’ businesses engaging such workers are not affected by the change. The definition of a ‘small’ business is to be based on the Companies Act 2006 definition of a small company. Companies are small if they meet two of these three criteria: having a turnover of £10.2 million or less; £5.1 million or less on the balance sheet; having 50 or fewer employees.

The Check Employment Status for Tax (CEST) tool

Planning ahead Employers with duties beginning in 2020 have some time to prepare. Planning should include allocating responsibility for engaging workers; and collating information as to how the work on individual contracts is undertaken, in order to make the employment status decision. There may also need to be consideration of how tax and NICs are processed. In some cases, employers and workers may prefer to change existing arrangements, with workers being taken onto the payroll. Small businesses will need systems in place to alert them if they are set to make the transition to medium. HMRC has an online tool which can be used to decide whether IR35 rules apply to any given contract. The Check Employment Status for Tax (CEST) tool can be used anonymously, and the findings printed. The results are binding on HMRC unless a compliance check subsequently finds that information supplied was inaccurate. As part of the IR35 reforms, HMRC is examining areas in which CEST itself can be improved.

Check employment status for tax

Use this service to find out if you, or a worker on a specific engagement, should be classed as employed or self-employed for tax purposes - click here...