IR35 and off-payroll workers

23 March 2020

In the emergency response to Covid-19, the Government has announced it is postponing the extension to off-payroll working rules to the private sector from April 2020 to 6 April 2021.

The intermediaries’ legislation, commonly known as IR35, was first introduced twenty years ago to counter perceived tax avoidance where independent contractors provided services to end users through an intermediary (typically, a personal service company).  IR35 essentially triggers a PAYE and national insurance cost when an otherwise independent contractor is deemed to be employed by the end client.

New rules that were intended to be effective from 6 April 2020 would have impacted on contractors working through a personal service company (PSC), recruitment agencies and all large and medium-sized private sector end clients.

The onus to assess whether the relationship between the contractor and the end client is one of de facto employment currently lies with the PSC, apart from contracts with the public sector.  Since 2017, public sector clients have become responsible for considering whether the contractor, or rather the contract, is caught by IR35.  The burden of assessing the employment status of contractors was due to extend to the private sector, but the new measures have been postponed for a year due to the economic impact of the coronavirus.

The Government continues to believe that it is right to address the “fundamental unfairness” of non-compliance with the existing off-payroll working rules, but it also recognises that the reforms would be a significant change for both businesses and contractors, in a time were many are at risk of losing work with no pay.

This delay will also give HMRC time to improve guidance and the CEST tool (intended to check employment status) which has been causing some confusion for many business owners who might have been affected by the changes.

We understand that private sector end-users who have already issued Status Determination Statements (to state that they believe a PSC provider falls within IR35) will not be bound by law and that such statements should not be used by HMRC in the event of an enquiry over the next 12 months.

We must stress that the changes being introduced were to move the responsibility from the PCS to the end-user client, and that existing IR35 legislation remains.   Due care and attention should still be taken by contractors operating through an intermediary / PSC to make sure they are still not caught by the rules.

We will keep you informed should any further considerations be required as the situation develops.