Off-Payroll Working Rules
IR35, also known as off-payroll working rules were introduced to ensure the working status of the individuals who work like employees i.e. they pay the same taxes as other employees’ do, irrespective of the structure they are working through. However UK government is of the view that not everybody is complying with the mentioned rule and furthermore the cost of non-compliance in the private sector has increased multi-fold, which is for sure not a desired outcome, especially when the government is clear that people who are working in a similar manner as a employee does then he should be paying broadly the same amount of employment taxes.
Her Majesty’s Revenue and Customs have been dealing with the above mentioned situation from quite some time now and finally decided to make certain reforms in the off-payroll working rules in order to have better compliance and while maintaining its commitment of supporting business and ensuring that UK remains an attractive place for those who wants to start their own business, it introduced a new reform in April 2017 under which the onus of determining your IR35 status has shifted from you to your client i.e. you no longer will determine and decide your working status and it will rather be decided by your client before he starts working with you.
Also Read: What is IR35?
IR35 off-payroll working rules Change
The above mentioned change or reform is only about tightening up on non-compliance and thus there is no change in the IR35 and although HMRC has introduced and announced the reform in April 2017, same will not be implemented before April 2020 and thus gives ample time for the businesses to prepare for the desired change. Also government is very clear when it says that it is not a blanket decision i.e. there cannot be one decision for every business and contractor and thus businesses should and must consider each contract individually in order to make right decisions.
Also for a better understanding of the changes, HMRC plans to publish suggestions to help contractors if they are not in agreement with their client’s status decision. As per the changes suggestions made by the government in the off-payroll working rules and mentioned above, from April 2020, you will not determine your IR35 i.e. working status and it will rather be done by your client. However, your client need to examine your contract, determine your status and must inform you of his decision on your status before he starts working with you. The suggested change in the off-payroll working rules does not add any liability in the existing one and has ensured that the existing rules work as intended or desired.
Also Read: IR35 Checklist
Apart from determining the right status of the contractors, HMRC has made reforms in the IR35 off-payroll working rules because of the following reasons:
- It is not fair that two individuals working in the same way are paying different income tax and National Insurance Contributions (NIC), just because one is working as an employee whereas another one is working through a company.
- Also it has been observed that those who are working off-roll are paying less income tax and National Insurance Contributions as compared to an equivalent employee and if statistic is to be believed, then the estimated cost of non-compliance to the exchequer will touch £1.3 billion per year by 2023-24.
- One of the main reasons behind introducing the reform is to bring the private sector in line with the public sector and as per the estimate of HMRC, the reform is expected to raise £550 million in income tax and NICs in the very first year.
- HMRC has made it clear in its announcement that the applicable changes will only affect people who are working like employees and through a company and not to those who are self-employed.
- The suggested reform in the off-payroll working rules will not only increase compliance with the existing off-payroll working rules in the private sector but will also make businesses more responsible for assessing an individual’s employment status.
IR35 off-payroll working rules
In order to understand and consider the opinion of those who might get affected by the suggested changes in the IR35 off-payroll working rules, HMRC gave an option of consultation and received 275 responses from businesses, representative bodies, individuals working through PSCs, tax professional bodies, law firms, charities etc and while some of them gave only general comments, many of them provided answers and their views to all the questions posed in the consultation document and government has tried to incorporate as many valid suggestions and recommendations as it could and has come up with a final reform.
Also Read: IR35 Reforms Private Sector Reality
The consultation proposes number of possible and potential options to address non-compliance with the off-payroll working rules in the private sector, such as:
As per the new changes, the onus on determining the work status of contractors fall on the client’s shoulder, it is important for medium and large sized businesses to buckle up for the same and be fully aware of the changes to communicate effectively and work on the following points:
While the medium and big sized business need to work on how to inculcate the new changes, getting used to the same is going to be an uphill task because the suggested changes in the off-payroll working rules will put the contractors in a difficult position where they might feel lack of control.
In order to avoid such situation, one should consider the following points: