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UK government to review off-payroll working changes

Out-Law News | 08 Jan 2020 | 11:57 am | 2 min. read

The UK government has announced a review of the implementation of changes to the IR35 off-payroll working tax rules which are due to come into force in April 2020.

"The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible," said Jesse Norman, the financial secretary to the Treasury. The review fulfils a commitment made by chancellor Sajid Javid just before the general election.

"There is no suggestion that the introduction of the IR35 changes will be delayed. This review is too little, too late. Businesses should not let it distract them from their preparations for this major change to the way they resource their operations," said Penny Simmons, a tax expert at Pinsent Masons, the law firm behind Out-law.

The review will involve discussions with stakeholders representing those affected by the reform, including contractor groups and medium and large-sized businesses. It is due to conclude by mid-February.

The announcement of the review says the government will also carry out further internal analysis, including evaluating its enhanced 'check employment status for tax' (CEST) tool and public sector bodies’ experience of implementing the reform to the off-payroll working rules in 2017.

The IR35 rules require that employment taxes be paid by people who provide services through a personal service company (PSC) 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.

The rules are due to change from 6 April 2020. From this date, engaging businesses will be made liable for determining whether the IR35 rules apply. They 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.

Public sector engagers have been responsible for IR35 compliance since April 2017.

According to the Treasury, the review will also "assess whether any additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted". It says the government will explore whether there are any further steps it could take to support businesses in correctly determining employment status.

"These comments about the self employed may be to acknowledge the fact that some large users of off-payroll workers have apparently only been prepared to deal with contractors on the basis that they are within the scope of PAYE. However, it is not clear what the government can really do to challenge overly-conservative engagers," said Chris Thomas, an employment tax expert at Pinsent Masons.

The government says it will launch a separate review into how it can better support the self-employed. This review will look at improving access to finance and credit, making the tax system easier to navigate and examining how better broadband can boost homeworking.