Set to come into force on 6thApril 2020, HMRC have released a raft of updated changes to the Off-Payroll Working rules and, in this article, we explore what these changes are and the affect they will have on businesses.
The Government consider that there is widespread non-compliance under the existing rules and hope the new rules will help to combat this.
IR35, now more commonly referred to as Off-Payroll Working, was initially introduced in April 2000 to prohibit contractors from abusing employment law in order to cut down on their tax and National Insurance liabilities by falsely claiming self-employment.
Initially the rules only applied to contractors working on contracts with public authorities, however the scope of the legislation has been broadened to take into account medium and to large sized private companies too.
How do I know if the Off-Payroll Working rules apply to my business?
HMRC recommends using what it calls the ‘simplified test’ to determine whether your business is required to comply with the Off-Payroll Working rules. In this instance, medium to large companies are defined as companies with an annual turnover of £10.2 million or more. Of course, exceptions to these rules apply and if you are an unregistered company or an overseas company of limited liability partnership the ‘simplified test’ will not suffice.
If your business fits into either of these two categories and you do have a turnover greater than £10.2 million and either a balance sheet total of £5.1 million or more or more than 50 employees, then you must still apply IR35 rules.
Private sector companies that do not meet these criteria will be unaffected by the forthcoming changes, the responsibilities will remain with the worker’s intermediary.
The new IR35 Off-Payroll Working rules
From April 2020 the Government plans to change the rules, shifting responsibility from the intermediary (typically a personal services company) to the ‘fee-payer’ (often the client). Going forward it will be the client’s responsibility to determine the employment status of the worker and with that will be a number of additional responsibilities.
In addition to having to pass employment status determination for each contract agreed with the worker or their intermediary, you must also record how and why you have reached that determination and supply this information as well.
This will not always be a simple process and there may be times when conflicts arise based on the determination ruled. It is important therefore that you have a detailed dispute process in place to deal with these disagreements.
Determining workers’ employment status correctly means reasonable care must be taken when reaching this decision. Failure to do so will result in you becoming responsible for the worker’s tax and National Insurance liabilities so it is vital for companies using contractors to have a thorough understanding of the measures used by HMRC to determine whether a worker is deemed to employed or self-employed for tax purposes.
Employment law support from Lawson West Solicitors
If you are concerned about the impact the new Off-Payroll Working rules will have on your business and you would like further clarity regarding the new legislation contact Lawson West’s employment team.
Our employment solicitors and lawyers can help advise on all employment law challenges.
In addition, we are a national provider of expert employment law advice and welcome a free discussion with you regarding your employment circumstances.
If you believe you have a situation where you require free legal advice, please contact Ashley Hunt on ahunt@lawson-west.co.uk.
