On 5 March the government published the long-anticipated consultation on Off-Payroll Working Rules in the Private Sector.
According to HMRC this new consultation is “intended to provide organisations and off-payroll workers with greater certainty around how the off-payroll working rules will operate from 6 April 2020 and the obligations and responsibilities of the various parties involved in the labour supply chain". The off-payroll rules will be replicated in the public sector with some amendments which will apply across both sectors.
There are four new proposals that agencies should be aware of:
1. Small company exemption
Importantly the off-payroll rules will not apply where the end user client is a small company, as defined in the Companies Act 2006. Where organisations are exempt, the existing IR35 rules (where the intermediary is responsible for applying the rules) will continue to apply. Finally when an organisation becomes or ceases to be small in an accounting period, for the purposes of the off-payroll rules that change will apply from the start of the tax year following the end of that accounting period, irrespective of whether the organisation is incorporated or unincorporated. It is not clear from the consultation how a recruitment business is meant to establish whether its client is a small company or not, and therefore which rules apply.
2. Greater transparency across the supply chain on IR35 determinations
The new proposals call for greater transparency within labour supply chains. End clients will have to directly inform off-payroll workers and the fee-payer of the reasoning underlying their IR35 determination. The REC is pleased that HMRC is pushing for greater transparency and we hope that this will go some way in deterring end clients in making blanket IR35 decisions. However we fear that such an administrative burden could lead to assignment dates being delayed.
3. Liability spread across the supply chain
Where HMRC does not receive the tax due, the government proposes that liability initially rests with the party that has failed to fulfil its obligations, until such a time that it did meet those obligations. The REC have consistently argued that agencies should not bear responsibility for the client’s IR35 determinations. We are therefore pleased to see some movement on this. However the proposal for transferring liability until the relevant party has carried out ‘its obligations’, suggests that agencies could still be left holding the liability for a matter of days or weeks, until the other party in the supply chain fulfils its obligation. The consultation does not propose personal liability for directors, office holders or associates of the fee-payer.
4. The introduction of a client-led status disagreement process
This means that end clients will be responsible for creating their own internal system to handle IR35 status disagreements. The government hopes that such a client-led system will provide additional assurance to fee-payers (and contractors) that the client has taken reasonable care in making their IR35 status determination. It is proposed that a minimum set of requirements will be set out in the legislation.
A summary of responses will be published later this year. The consultation will inform the draft Finance Bill legislation, which is expected to be published in summer 2019. The REC will be seeking feedback from members on the proposed changes in the reform, and submitting a response to the consultation by 28 May 2019. The REC is also working with HMRC on the improvements to the CEST (Check employment status for tax) tool.