Out-Law / Your Daily Need-To-Know

Unprepared UK businesses seek delay to off-payroll working changes

Out-Law News | 01 Nov 2019 | 10:39 am | 2 min. read

Professional bodies have called on the UK government to push back changes to the IR35 off-payroll working rules due to the cancellation of this month's Budget and imminent general election.

The Association of Taxation Technicians (ATT) said that businesses faced "a greatly reduced and unrealistically short time frame in which to adapt" to the new regime, which is due to come into force in April. Final legislation extending the off-payroll working rules to private sector engagers was expected to be included in a 2019 Finance Bill, which is usually published alongside the Budget.

Jon Stride of the ATT said: "We strongly urge the government to delay this major shift in how businesses engage with contractors until 2021".

"Many important practical issues, such as when liability can be transferred within an engagement supply chain and exactly when information will need to be shared by clients, are not addressed in the draft legislation at all. We have also seen only limited evidence of any HMRC education and information campaigns so far," he said.

Chris Thomas

Legal Director

It would be very unwise to bank on any delay - and given the complexities involved in preparing for the new regime, businesses really do need to act now.

Without final legislation, detailed guidance and an updated version of the HM Revenue and Customs (HMRC) Check Employment Status for Tax (CEST), business cannot adequately prepare for the changes, the ATT said. Affected businesses will also be grappling with continued uncertainty over the UK's planned exit from the EU, following a further agreed 'flextention' until 31 January 2020.

However, employment tax expert Chris Thomas of Pinsent Masons, the law firm behind Out-Law, said that a delay was unlikely.

"Whilst anything is possible in the current political climate, the likelihood of these changes being deferred would seem to be low," he said. "Put simply, this is too good a revenue raiser for the government to delay its implementation, especially when public finances are stretched due to Brexit and election spending pledges. HMRC says that businesses have had plenty of time to prepare, and indeed have been specifically warned to do so."

"Of course, the reality is somewhat different – we still lack any meaningful guidance to fill in the gaps in the legislation, and the long-promised improvements to CEST have yet to materialise. However, it would be very unwise to bank on any delay - and given the complexities involved in preparing for the new regime, businesses really do need to act now," he said.

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. The public sector changes were widely criticised for being rushed, according to the ATT, and the government said in its 2018 consultation response that it was "committed to learning from the public sector reform" when implementing the private sector changes.

A recent survey by Hays Recruitment found that one third of private sector organisations who engage temporary workers or contractors are unaware of the proposed reforms. Less than half of respondents who regularly engage these workers have begun preparing for the changes, it said.