“This guidance makes it abundantly clear that despite lobbying from business, the government currently has no intention of withdrawing or delaying changes to the IR35 rules," said Penny Simmons, a tax expert at Pinsent Masons, the law firm behind Out-law.com.
Tax rules known as IR35 require that employment taxes be paid by people who provide services through personal service companies (PSCs) if that person would otherwise have been regarded as an employee of the engaging business. Currently, where a private sector business engages a contractor through a PSC, liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC.
Once the new regime is in force, the engaging business will be liable for determining whether the IR35 rules apply and will also be required to operate PAYE and pay employers' National Insurance contributions (NICs). The changes will not apply to small businesses which engage contractors through PSCs.
HMRC advises large and medium sized businesses in the private sector to look at their workforce, including those engaged through agencies and other intermediaries, to identify those individuals who are supplying their services through PSCs. Businesses should then work out if the off-payroll rules apply for any contracts that will extend beyond April 2020.
HMRC also advises businesses to start talking to their contractors about whether the off-payroll rules apply to their role. Businesses should also put processes in place to determine if the off-payroll rules apply to future engagements. HMRC suggests these might include who in the organisation should make a determination and how payments will be made to contractors within the off-payroll rules.
"For businesses with large flexible workforces, completing HMRC’s recommended list of actions will take time and they should not delay commencing preparations," Penny Simmons said.
"This is now the second publication from HMRC recommending that businesses start responding to the changes and we expect HMRC to begin robustly reviewing compliance from April 2020,” she said.
Off-payroll working rules have applied to the public sector since April 2017. HMRC is currently consulting on how the rules should be rolled out to the private sector. Among the topics under consideration are the scope of the rules, including the definition of 'smallest' businesses which will be excluded; the responsibility of each party in the labour supply chain, including agencies and other intermediaries; and how disputes over contractor status determinations should be resolved. The consultation closes on 28 May. The consultation document also warns businesses not to delay preparing for changes to the off-payroll working rules.