The Government’s consultation on off-payroll working runs until 28 May 2019 – what does the proposed new regime look like?
From 6 April 2020, large and medium sized businesses must determine whether engagements with contractors fall within the ‘IR35’ regime.
Where a deemed employment exists, the end user will be responsible for operating PAYE/NIC on payments it makes to the worker’s Personal Service Company (PSC). Where the PSC is engaged via an agency, PAYE/NIC will be operated by the agency based on the end user’s determination.
As promised at November’s Budget, the Government is now consulting on the detailed operation of the new rules.
The proposed reforms will also extend to the public sector.
In summary, the consultation covers three key areas.
The consultation poses a number of questions concerning information flow.
These concern how the end user’s status determination should be made available to other parties in the labour supply chain to ensure they are able to comply with their obligations.
Enforcement is also addressed. For example, should the top agency be responsible for securing the downstream labour supply chain, with the ultimate liability for unpaid PAYE/NIC falling on the end user?
Resolving status disputes
To ensure end users take due care determining the status of engagements, the consultation proposes that off-payroll workers, and any downstream fee-payer in a labour supply chain, should be notified of the reasoning behind the end user’s determination.
The consultation proposes that end users design and implement their own processes, based on requirements to be set out in the legislation, for resolving status disagreements.
The consultation confirms that the current public sector rules relating to operating PAYE/NIC and Apprenticeship Levy will apply. There will be no obligation to withholding student loan repayments.
Existing anti-avoidance provisions that can apply where there are offshore entities in the labour supply chain will also apply in the new regime.
The current public sector rules for ‘contracted out’ services will apply, and the applicability of the agency legislation, umbrella companies rules, managed service company legislation and construction industry scheme will also need to be considered in conjunction with the reformed off-payroll working rules.
Interestingly, the consultation proposes relief from withholding obligations where the fee-payer makes contributions to an off-payroll worker’s pension.
Whilst this is welcome in principle, it may give rise to some practical challenges unless the process could be suitably streamlined.
The consultation closes on 28 May 2019 and will inform draft Finance Bill legislation to be published this summer.
In the meantime, it is important that organisations work through the detail of these proposals and consider their practical impact.
In this respect, HMRC suggest organisations should identify and review their current arrangements with PSCs and agencies; review their contingent labour arrangements more generally; establish joined-up processes to arrive at consistent decisions on employment status; and review internal systems to determine what changes are needed prior to April 2020.
The consultation confirms HMRC is enhancing its online Check Employment Status Tool (CEST) to address stakeholders’ concerns that it does not presently give an accurate determination in some cases and does not reflect more complex private sector working arrangements.
KPMG has extensive experience of advising on the off-payroll working regime, and assisted many organisations to implement the 2017 public sector reforms.
We have produced a guide to assist businesses get ready for the new regime.
Our range of technology solutions can assist in identifying ‘at risk’ engagements, as well as assess potential costs.
We will hold a webinar on the consultation on 27 March. Please click to register.
If you would like to understand the prospective changes and their potential impact on your organisation, or explore how our technology can support you, please get in touch with your normal contact or email email@example.com.
The public sector ‘IR35’ rules will extend to the private sector from April 2020 – there are practical steps that businesses should take now.
KPMG has submitted its views on HMRC’s consultation on off-payroll working in the private sector.
The Government’s long awaited consultation on off-payroll working in the private sector was launched on 18 May.
The Government has announced its intention to consult on the extension to the private sector of the IR35 reforms, introduced in the public sector earlier this year.