HMRC has released a consultation on the off-payroll working rules which are due to come into force from April 2020. The government had previously announced, in the Budget 2018, that the reforms will be enacted ahead of 2020. The purpose of the consultation is to establish how the legislation will operate in the private sector.
The full consultation can be found here https://www.gov.uk/government/consultations/off-payroll-working-rules-from-april-2020 and responses should be submitted by 28 May 2019.
The proposals set out in the consultation are expected to be rolled out to the public sector (already falling under the off-payroll working rules April 2017) as well as to the newly impacted private sector.
Who will be impacted by the changes?
The consultation confirms that in the private sector the smallest organisations will not be affected by the reform and will not need to determine the status of the off-payroll workers they engage. This relates to the end client, not the contractor.
The government intends to use the existing statutory definition within the Companies Act to determine whether or not a corporate client is small (turnover less than £10.2m, gross assets less than £5.1m and less than 50 employees).
Therefore, if the end client that you are contracting with is medium or large then they will need to decide whether the rules apply to your engagement.
Responsibilities of Stakeholders
Currently under the off-payroll legislation covering the public sector, the client (the entity ultimately receiving the services) has to provide a copy of their IR35 status determination to the party they contract with i.e. the recruitment agency.
The consultation proposes that the status determination is provided to the entity they contract with and the off-payroll worker. It is proposed that the requirement to cascade the determination through the supply chain would be legislated to ensure compliance.
The potential penalties arising from non-compliance could be that the party not passing on the applicable information would be liable for the arising taxes and National Insurance until such time as they do comply with their obligations.
The consultation further proposes the need to introduce measures to ensure that there are appropriate processes so that contractors can resolve disagreements surrounding status determinations.
What will the impact be?
If your client’s assessment is that the assignment is outside IR35 then the director/shareholder can continue to extract profits in a combination of salary and dividends.
If your client’s assessment is that the assignment is inside IR35 all of the fees will be subject to income tax and national insurance. This means that your take-home pay will be the same as if you were an employee.
In addition, there will be limitations on expenses that can be claimed through the limited company. For example, you would not be able to claim travel and subsistence expenditure.
A comparison is set out below:
What will my options be going forward?
The final legislation has not been released and therefore your agency/end client probably hasn’t taken any steps to assess your IR35 status. If your client has started their assessment on you then you can follow through our decision tree to work out what your next steps should be: