Off-payroll working in the private sector consultation

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On 5 March 2019, HMRC published a policy paper and consultation document on extending the off-payroll working rules to the private sector from 6 April 2020.

The rules will be based on the existing off-payroll working rules that have been in force in the public sector since 2017. In essence, private sector clients in scope (see below) will be responsible for determining the employment status of individual contractors.  If the client determines that the worker is a deemed employee then the fee-payer must account for and pay income tax, NICs and the apprenticeship levy as if the worker was an employee.  The fee-payer will not be responsible for making statutory payments or making student loan deductions. Note that the rules deal only with employment status for tax and NIC purposes and just because a worker may be a deemed employee for the off-payroll working rules it does not necessarily mean that an Employment Tribunal would deem them to be an employee.

Which companies are in scope?

‘Small Companies’, as defined in section 382 Companies Act 2006, will not be caught by the new rules. In effect, this will exclude companies who satisfy two or more of the following criteria:

  • annual turnover not more than 1.2m
  • balance sheet total not more than £5.1m
  • no of employees not more than 50.

Changes proposed under the consultation

The proposed changes which, if implemented, will also be made to the public sector rules, include:

  • requiring clients to provide the individual contractor’s status determination to the contracting party and directly to the worker with reasons for the determination if requested
  • requiring each entity in the labour supply chain to pass the status determination and reasons for it down the supply chain
  • extending provisions for transferring tax and NICs in the event of non-compliance including transferring liability to compliant businesses in the supply chain if HMRC is unable to collect outstanding tax and NICs from an entity because, for example, it has ceased to exist
  • requiring clients to implement a process for resolving status disputes.

The Government is also considering legislating to allow fee-payers to make tax and NICs-free contributions to a worker’s personal pension reducing the gross fee paid and therefore the fee-payer’s ‘employer’ class 1 NICs liability.

The timescale

The responses to the consultation (which closes on 28 May 2019) will inform the draft Finance Bill which is due to be published this summer 2019. The off-payroll working rules for the private sector will be brought into force on 6 April 2020.

There is no doubt that this is a game-changer for companies that engage self-employed or independent contractors. Preparation is crucial including an analysis of the impact the new rules might have on contract prices, contract terms, contractor day rates and business continuity generally.

If you would like to discuss the impact of the changes on your business please contact David Smedley or Andrew Rayment.