The government has published its final proposals for reforming the off-payroll working rules. What should you do now?
Following the most recent consultation on the detailed operation of the new rules, HMRC has published a summary of the responses received and the government’s final policy proposals. Draft legislation to implement the new regime has also been published.
From 6 April 2020, large and medium sized organisations (’clients’) in the private and voluntary sectors must determine whether engagements they enter into with contractors fall within the IR35 regime. The current regime will continue to operate for public sector bodies and any changes to the legislation will apply from 6 April 2020.
Where the client determines that IR35 applies, the party that makes payments to the contractor (i.e. the client or another party where the contractor is engaged through e.g. an agency) will be responsible for operating PAYE/NIC on payments to the worker’s Personal Service Company (PSC).
The key features of the new regime are summarised below.
Status Determination Statements
Clients will be required to provide an IR35 status determination for the engagement and issue status determination statements that should include supporting reasons, to both the first party they contract within the labour supply chain (which will pass down the chain to the fee-paying entity) and the worker.
Interestingly, the client will be liable for the relevant PAYE and NIC until it has provided the status determination,or if it has not taken reasonable care in preparing the status determination statement.
Whilst there is no timescale for the fee-payer or worker to challenge the determination, if and when this does happen, the client must respond within 45 days.
We expect HMRC will publish guidance on how clients can take ‘reasonable care’ to arrive at status determinations and how the status dispute process could operate.
The liability for any unpaid PAYE and NIC will transfer up the supply chain and may end up being the client’s responsibility.
However, the government recognises that in certain circumstances (e.g. in the event of a genuine business failure in the supply chain) it would not be appropriate for HMRC to pursue unpaid liabilities in this manner.
HMRC will issue further guidance on the new regime in the coming months and an enhanced online Check Employment Status Tool (CEST) will be made available before the end of 2019.
However, at this stage it is unclear what changes will be made to CEST, particularly in relation to points arising in recent litigation in which taxpayers have been successful in arguing that IR35 does not apply.
The new regime will apply to public sector bodies, as well as to medium and large clients in the private and voluntary sectors.
The existing private sector IR35 regime, where the obligation to assess its application and account for any PAYE or NIC due falls on the PSC, will continue to apply to engagements where the client is a ‘small’ organisation outside the public sector.
In summary, a company will be ‘small’ for these purposes if it is within the Companies Act small companies regime. Unincorporated clients will be ‘small’ if their turnover does not exceed £10.2 million over a calendar year.
At this stage, organisations should:
Once potentially affected engagements are identified, robust processes should be introduced to determine status under IR35 and manage information flows in the labour supply chain.
KPMG has developed technology to support clients in complying with the new rules, including:
You can access a recording of our latest webinar on IR35 reform here.
If you have any queries, please get in touch with your normal contact or e-mail Caroline Laffey Partner of Employment Tax at KPMG in the UK, Colin Ben-Nathan Director of Employment Tax at KPMG in the UK, Anne-Marie Robinson Director of Employment Tax at KPMG in the UK or email@example.com.
© 2020 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.