Over the past ten years, various steps have been taken to improve the effectiveness of the off-payroll (IR35) rules, with limited success. In April 2017 the Government reformed the way in which the rules operate in the public sector by shifting responsibility for determining employment status from an individual contractor to the organisation engaging them. These rules are being extended to medium and large organisations in all sectors of the economy from 6 April 2021 and businesses need to prepare ahead of this date to ensure they are able to meet compliance obligations.
Many organisations will have already started to prepare. However, given the difficulties being faced due to the coronavirus, many businesses will have had to prioritise other matters. With this in mind, HMRC have recently re-launched their package of customer education and support on this subject, hoping that it will help motivate businesses to start preparing.
Businesses that may be affected by the reforms are:
- medium or large sized non-public sector organisations which engage contractors who work through their own intermediary
- employment agencies which supplies contractors who work through their own intermediary
- contractors who provide services through their own limited company or other intermediary.
Preparation work may include the following:
- Looking at the current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through personal service companies
- Determining if the off-payroll rules apply for any contracts that will extend beyond April 2021. The CEST tool can be used to do this (see below).
- Communicating with contractors about whether the off-payroll rules apply to their role.
- Implement processes to determine if the off-payroll rules apply to future engagements. These might include who in an organisation should make a determination and how payments will be made to contractors within the off-payroll rules.
HMRC are running a series of overview webinars, which also include an opportunity to ask questions using an online chat tool. The following webinars are currently available:
- Overview of the off-payroll working rules –an end-to-end overview of the reform
- Overview of the off-payroll working rules for contractors – providing contractors with an overview of the reform and an outline of what they need to do to prepare for April 2021, including the practical accounting requirements for them and their limited company or other intermediary
- Making the determination, disagreements and record keeping – covering HMRC’s view on requirements to make a determination and what constitutes a disagreement. Some aspects of this webinar may be relevant to contractors.
Full details of the webinars, including links to the registration pages, can be found at https://www.gov.uk/guidance/help-and-support-for-off-payroll-working.
HMRC will also be running some topic-based webinars for those who already have an understanding of the basics of the off-payroll working rules. Further information on these webinars can be found at https://www.gov.uk/guidance/help-and-support-for-off-payrollworking
HMRC say they will also be running workshops and education calls for small groups of customers that will be delivered virtually, providing a comprehensive overview of what the changes mean.
The HMRC Employment Status Manual (ESM) has been updated for the new rules and contains detailed guidance and clear explanations of how the rules should be applied. Some pages may be relevant for contractors.
The Check Employment Status for Tax tool (CEST) is already available for organisations and contractors to consider the appropriate employment status for tax for contracts running beyond 6 April 2021.
HMRC have confirmed that they will stand by the results given by the CEST tool, provided it is used in accordance with their guidance and the information entered is accurate, and remains accurate. This is regardless of when the tool is used ahead of April 2021, and means employers can already use the tool for engagements that start in April 2021 onwards.
Partner Note: Finance Act 2020, s 7 and Sch 1; HMRC Employer Bulletin (October 2020): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/926890/8155_Employer_Bulletin_86_v6_Accessible.pdf; CEST tool: https://www.gov.uk/guidance/check-employment-status-for-tax; Off-payroll working (IR35) guidance: https://www.gov.uk/topic/business-tax/ir35