HMRC: HR Directors & Hiring Managers to apply the off-payroll worker tax rules (IR35)
Yesterday, HMRC issued hotly anticipated draft legislation to reform off-payroll working tax in the private sector. The proposed changes, which will be introduced on 6 April 2020, mean that the burden of sorting out “widespread non-compliance” will be placed on private sector companies. This will create more work between now and 6 April 2020 for HR teams’ and Hiring Managers and generate a bigger tax bill for their business.
Legislation will be introduced in Finance Bill 2019 to amend Income Taxes (Earnings and Pensions) Act 2003 and relevant National Insurance contributions regulations, so that where an individual works for a medium or large-sized engager outside of the public sector, through their own personal service company and falls within the rules, the following will happen:
- Responsibility will shift from the off-payroll worker’s limited company to the end user to make decisions in advance about the off-payroll worker tax status of each engagement with a limited company.
- The entity paying the off-payroll worker’s limited company (the fee-payer) is treated as the worker’s employer for income tax and national insurance purposes. This means limited company invoices must be paid net of tax.
- The amount paid to the off-payroll worker’s limited company is deemed to be “employment income”. This broadly means that these sums would not attract VAT or corporation tax.
- The fee-payer is liable to pay employer’s national insurance contributions, being about 12.8% of the gross amount. This is a new tax liability on the fee-payer, previously being a cost borne by the off-payroll worker’s limited company if this tax applied.
- The fee-payer is obliged to remit tax and employer’s and employee’s national insurance deductions to HMRC in real time, just like the PAYE deductions for staff.
Impact on Private Sector
Every medium or large private sector businesses (i.e. two of either (i) a turnover of more than £10.2M, (ii) a Balance Sheet of more than £5.1M or (iii) 50 or more employees) will need to:
- know whether the Off-payroll Worker Tax rules apply or not;
- if so, issue a tax status determination with reasons for every engagement or call off in advance; and
- manage a mandatory dispute resolution process with the off-payroll worker and their limited company (and possibly, the agencies through which these limited companies
- invest in setting up robust systems and training for staff to make correct tax determinations and provide written reasons.
Although shifting enforcement of the off-payroll worker tax onto private businesses will realise an extra £1.3 billion a year for the Exchequer by 2023-24, there is no direct financial support or tax breaks – only an improved CEST test and online guidance will be available.
How can Burness Paull help?
This is a huge project for HR teams to deliver prior to 6 April 2020 but help is at hand. Our expert team of Robert Phillips, Senior Associate (Employment), and Ronnie Brown, Partner (Tax), who have been active in responding to the consultations with HMRC will be hosting workshops to guide you through the changes and what you need to do to be ready for 6 April 2020.
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