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Off-Payroll in the Private Sector

almost 4 years ago by Thea Fraser

Off-Payroll in the Private Sector

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Everything you need to know about Off-Payroll (IR35) in the Private Sector

HMRC is doing all it can to tackle non-compliance with the intermediaries legislation (also known as IR35). Any business engaging with contractors will be affected by the IR35 reform in some way – so it’s important to understand the impact that these changes could have to your business and how you can prepare for them. 

As you will know, the IR35 legislation was established in 2000 to deter the use of Personal Service Companies “PSC’s” for facilitating disguised employment. In the original legislation, it was the PSC’s responsibility to self-assess, declare and pay the appropriate tax; however, as of April 2020, the responsibility will shift from the PSC to the end-hirer in the Private Sector. When these changes were launched into the Public Sector in 2017, HRMC estimated that it raised £550million in income tax and NIC in its first year.

Preparation Timeline

April 2020 is miles away, we have plenty of time to prepare, right? Not when you break it down it’s not…

Realistically, you should be taking action now.

Assessment Criteria

The liability may have shifted, but the way that IR35 status is assessed remains the same: an employment test is carried out, on a case to case basis. The employment test focuses on actual working practices as opposed to what is contracted. There are three main criteria used to determine whether the IR35 legislation is applicable to your contractors or not:

1.    Control: Does line management dictate tasks and the hours in which those tasks ought to be completed?

2.    Substitution: Do you prohibit contractors from sending in a substitute to complete work in their place?

3.    Mutuality of Obligation: Is your organisation obliged to provide the contractor with work and are they obliged to accept it?

If the answer is no, then the chances are that your contractor’s work sits ‘outside’ of IR35. If you answered yes to one (or all) of the above, then there is a high chance that your contractor is at high risk of falling ‘inside’ IR35. HMRC’s online CEST tool, which has been used by public sector end-hirers to determine employment status, has been known to provide inconsistent results, therefore, private sector organisations are (rightly) questioning whether it is robust enough to be used in isolation for making this assessment. ​

What does this mean for my organisation?

If your organisation is ‘medium’ or ‘large’ the responsibility will sit with you to decide whether contractors’ roles fall inside or outside of IR35 from April 2020.  Your organisation must make each decision with “reasonable care” therefore a blanket ban of PSC’s, or a blanket assumption that all contractors are inside IR35, will not be viable. The assessment decision must be communicated to other members within the supply chain of that contractor so that any intermediaries can withhold the relevant taxes via PAYE. A failure to pass this information on could result in the interception of liability - wherever the assessment has been made incorrectly or without reasonable care, that entity will be liable for any unpaid taxes.​​

We recommend that our clients engage with a professional expert to perform a risk-based audit of their active contractor base ahead of the legislation taking effect. Experts can also provide guidance around how working practices can be refined, to ensure that future assignments contractually reflect the working practices of each role (which should avoid any discrepancies affecting the assessment of IR35 status going forward). They will also be able to suggest robust processes for making the IR35 assessment with “reasonable care” which should avoid risk-transfer.

Do we have any recommendations?

We recommend Ernst & Young (EY) – a global leader in assurance, tax, transaction and advisory services. Their Global Employment Tax Services team has an outstanding track record in providing consultation in regard to the IR35 reform. 

If you would like to learn more about changes to the IR35 legislation - how it may affect your business and what action you can take - contact and we will do our best to provide you with essential information and guidance.