The Government has launched a new consultation on the ‘off-payroll’ private sector IR35 extension. Here we look at what this exercise involves, and what the Treasury hopes to achieve from it.
The so-called ‘off-payroll working’ rules are already in place for public sector organisations. Hastily rolled out in April 2017, this addition to the existing IR35 rules puts the burden of working out a contractor’s IR35 status on to the engager. These rules are set to be expanded to cover all but the smallest private sector clients from April 2020 onwards. This means, unless something dramatic changes in the meantime, private sector clients will be tasked with establishing the employment status of all of their contractors from this date onwards.
If a contractor’s engagement is deemed to be ‘caught’, then the client will also be responsible for collecting income tax and NICs owed from the assignment.
I thought there had already been a consultation?
Yes, there was. Launched in May 2018, there was an initial consultation which asked whether or not the off-payroll legislation should be extended to the private sector at all. Given that the Government deemed the initial public sector rollout to have been a success, it is unsurprising that the Treasury concluded that an extension to the private sector would be a good idea.
What happens now?
This latest consultation (view the document here) aims to fine-tune the existing legislation – it “seeks to understand how best to implement the reform in the larger and more diverse private sector.”
The document asks specifically for feedback relating to:
- The scope of the reform – the Government intends to use statutory definition within the Companies Act to determine whether or not a corporate client is ‘small’ – 50 employees or less, annual turnover of £10.2m or less, and a balance sheet total no more than £5.1m (two or more of these conditions must be met to qualify as a ‘small’ company). However alternative options may need to be found for ‘non-corporate’ clients.
- How should employment status determinations be passed down the labour supply chain, between clients, agencies, and contractors? What impediments are there to information flowing between all the parties in the chain?
- Which parties in the chain are ultimately liable if HMRC finds evidence of ‘non-compliance’? It appears as if the intermediaries (recruitment agencies) will be expected to carry this burden.
- What happens when there are employment status disagreements?
- How do the off-payroll rules impact other legislation, such as Agency legislation, MSC rules, the CIS, etc?
- How will the legislation affect pension contributions of workers caught within its scope?
- How the existing employment status tool – CEST – can be enhanced.
- What can businesses do to prepare for April 2020? The consultation document lists a number of steps organisations should take in advance of April 2020 – including identifying and reviewing current arrangements involving intermediaries, reviewing internal systems (including payroll), and putting in place processes “to get consistent decisions about the employment status of the people they engage.”
The consultation will run until 11:45 pm on 28 May 2019.
General concerns remain
The consultation document suggests that the Government plan to do very little to tweak the current legislation. As has been the case since the inception of IR35, the Treasury appears to be driven by revenue – even if the amount raised so far by the public sector rollout is heavily disputed.
The main concerns within the private sector still appear to be:
- What is being done to prevent engagers from making blanket determinations on employment status – particularly if recruiters look likely to face the greatest potential liabilities if they get things wrong?
- What happens if a contractor doesn’t agree with an employment status decision?
- What on earth can be done to make the CEST employment status tool anything like fit for purpose?
- What will be done to provide clients and contractors with the information they need to genuinely understand how the off-payroll rules operate?