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IR35 payroll reforms: UK Oil & Gas

IR35 payroll reforms: UK Oil & Gas

IR35 payroll reforms will be extended to the private sector. Find out what that means for the UK oil and gas industry

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Claire Angell

Partner and UK Head of Tax, Energy

KPMG in the UK

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oil and gas

It was announced during the Budget last year that the public sector off payroll reforms (“IR35”) will be extended to the private sector. The changes in IR35 will see responsibility for determining whether an engagement falls within the ‘IR35’ regime moving from the worker’s Personal Service Company (PSC) to the end user.

These changes will take effect from April 2020 and be limited to large and medium sized enterprises that engage contractors through PSCs.

Where an employment relationship is deemed to exist (or such a relationship would exist but for the existence of the intermediary), the end user of the services will be responsible for operating PAYE/NIC on payments made to those PSCs if it pays them directly

If the end user has contracted with an agency the end user will need to determine whether there is an underlying employment relationship, (but, if so, the agency will be responsible for applying PAYE/NIC to payments made to the PSC).   

Further detail regarding the proposed operation of the new regime was published in an HMRC consultation document on 5 March 2019. At a high level, the focus of the consultation is on the following areas:

  • Establishing a process for ensuring that employment status determinations may be made available to all parties in the supply chain;
  • Ensuring due care is taken in arriving at status determinations; and
  • Clarifying the processes to be applied when operating PAYE/NIC withholding via the payroll.

HMRC has also confirmed that it will continue to work with interested parties to implement improvements to their CEST tool and associated guidance, to ensure it meets the needs of the private sector.  The consultation runs until 28 May, after which, we expect to see draft legislation published in the summer.

Please see a link to the recording of the WebEx we recently held on the subject here.  A further WebEx will be taking place in late March, with invitations to be issued shortly to registered users of KPMG’s Employers’ Club – to register for our service please click here.

It is important that steps are taken now to ensure compliance because:

  • Many organisations do not know how many workers provide their services through this type of structure, or who those workers are, and will need to go through a process to identify those who are currently engaged and who within the organisation has responsibility or authority to engage workers in this way;
  • New systems and processes will need to be introduced to make sure you can identify workers caught by the new rules and take the necessary actions via payroll. Complex supply chains in Oil & Gas mean that determining whether there is an underlying employment relationship can be a complex process;
  • The cost of using workers caught by the new rules will increase because employer National Insurance Contributions (at 13.8% of all payments made) as well as the Apprenticeship Levy (at 0.5% of payments made) will be due and contracts will need to be reviewed/drafted and decisions taken as to who should bear any additional costs; and   
  • This may be an issue in respect of service providers you engage directly or through agencies, but also for any of your suppliers who rely on labour which is provided in this manner – in the latter case, you will want to ensure that in addition to the direct impact on you, any of your suppliers who rely on labour provided through personal service companies may suffer increases in cost. You should therefore review contracts to ensure they are clear on who will bear any additional costs arising as a result of legislative changes.

Based on our experience of working with public sector bodies, we know that it can take up to 18 months to ensure the relevant controls and processes are in place to cope with the new rules.

We are therefore recommending that businesses start to explore what steps they will need to take as soon as possible, so that they are prepared for these changes when they are introduced. 

 

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