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Off-Payroll Working reforms deferred until April 2021

Off-Payroll Working reforms deferred until April 2021

Changes to the OPW rules have been delayed by a year. What are the practical implications for businesses?

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Caroline Laffey

Partner, Tax and People Services

KPMG in the UK

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In a move designed to support businesses dealing with the impact of COVID-19, the Government has announced that changes to the Off-Payroll Working (OPW or IR35) rules will now take effect from 6 April 2021. The current differences in approach between the public and private sectors will continue until then. Whilst many organisations have made significant preparations for the expected changes, the delay does allow businesses to consider whether off-payroll workers might yet still provide the flexibility they need in the current environment, without the additional administration and costs of the new rules.

Businesses in the private sector will not need to operate the new IR35 rules until 6 April 2021. This means that the current rules will continue, and the contractor themselves – not the end client – will need to determine whether or not IR35 applies to a particular engagement. This is of course just a deferral, not a cancellation.

Many business models have already been adapted to take account of the new rules and there will be an urgent need to reflect on these decisions to identify whether they are still appropriate. Where decisions have already been made, businesses will likely face pressure to re-evaluate those decisions to assure key stakeholders that they have responded to the recent news.

What should organisations do?

Review their current position

We find ourselves operating in a different tax environment that has a major impact on labour supply chains. Organisations will need to understand, review and decide on the most appropriate model with their labour suppliers. Systems will already be in place so a quick response and early engagement is vital to ensure their new model meets their cost and talent needs.

Communicate with their contingent workforce

In the run up to April, businesses have been communicating with contractors as to any changes required to their engagement and working practices. These changes may now not be required from a compliance perspective. Revisiting those changes and communicating whether they will still go ahead is key.

For example:

  • Contractors who have been informed they are inside IR35 will be clearly concerned that this means that they must now withhold tax and NIC;
  • Other contractors may have been moved to agency PAYE arrangements – i.e. stopped using their Personal Service Companies (PSCs), in anticipation of the changes coming in from 6 April – reversing this decision and reverting to a contract with the PSC may be possible, but will require careful consideration of the employment law implications for them and their ‘employer’, whoever that is in the supply chain; and
  • Other individuals may have moved to a permanent employee role with again broader employment law and other considerations for changing these arrangements.

Consider the longer term

Whilst planning to introduce new processes and controls to comply will have been time well spent, the delay does provide more time for some aspects of the new rules, including their interaction with other parts of the tax legislation, to be given further consideration.

What happens next?

We will be encouraging HM Treasury and HMRC to turn their attention to these points in due course and will keep you updated as progress is made.
Further commentary will appear on our Employers’ Club website and dedicated OPW reform landing page. You can subscribe to People & HR Insights via our preference centre to keep up to date.

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