IR35 Off-Payroll Tax Rules: Changes Affecting Private Sector

This article was published before the Government announced it would postpone the reforms from 6 April 2020 in light of the Coronavirus crisis. A new implementation date is yet to be confirmed. 

New IR35 rules are coming into force that apply to private sector companies in the UK.

Under the new regime, private sector organisations, as end-clients of off-payroll workers, are responsible for determining the tax status of the contract, unless the organisation end-client is deemed to be small under the Companies Act.

Prior to the rule change, the workers’ limited companies – also known as a ‘personal service companies’ (PSC) – had been responsible for any unpaid tax.

The amended rules will not apply where the end-client does not engage with PSCs.

Organisations are now preparing for the changes to take effect.

Companies such as HSBC have already issued corporate statements to confirm they are ceasing to engage with PSCs, effectively ending all work with contractors.

This is in contrast to a blanket determination approach, where an end-client continues to work with PSCs on the basis of applying the same assessment to all or part of the contractor workforce, as opposed to making individual assessments.

Applicable only on or after 6 April 2020

HMRC announced on 7th February 2020 that the new rules are not retrospective and apply only to payments made for services on or after 6th April 2020.

This was a significant concession on the initial plans, which would have seen any payments made to the PSC on or after 6 April 2020 caught by the changes, irrespective of when the services were performed or the invoices were raised.

The Government continues to review the IR35 change implementation, with further announcements and changes still likely ahead of April’s start date.

This includes concerns about ensuring that the self-employed, who are not within the scope of IR35 rules, are not impacted.

Legislation for the new rules will also have only 3 weeks to be passed following the Budget in March.

Given the challenging timeframes, HMRC are expected to take a ‘soft’ approach towards businesses during the initial 12 months to focus on education rather than enforcement.

IR35 Off-Payroll Tax Rules: Changes Affecting Private Sector 2
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