From April 2020, off-payroll working rules in the UK will change. More specifically, the IR35 responsibilities which currently apply to public sector businesses will be extended to medium and large businesses in the private sector. IR35 refers to the legislation which ensures that off-payroll or contracted workers who supply their services to employers via an intermediary (usually the contractor’s limited company), are paying the correct income tax and National Insurance contributions. The UK’s 1.5 million smallest businesses will not be affected by the new tax rules.
The IR35 extension was first announced in the UK’s 2018 Autumn Budget, but with its implementation on the horizon, HMRC is working to help businesses prepare in a number of ways. With that in mind, UK employers should understand what help is available to them, and where to find it.
Understanding the IR35 Changes
IR35 regulations were introduced to address the problem of contracted workers paying less tax than direct employees working in essentially the same role. IR35 ensures that contracted workers are treated the same as direct employees for tax purposes: the regulation has been in place for the public sector since 2017 but will be extended to the private sector from 6 April 2020.
Practically, IR35 rules mean that businesses are obliged to ensure their contracted, off-payroll workers are classified correctly by payroll, and subject to the appropriate tax treatment.
The application of IR35 rules to the private sector may cause friction as payroll departments implement the new regime and workers themselves adjust - businesses with large numbers contracted-employees may be particularly affected. To prepare private sector businesses for the extension of IR35 in 2020, HMRC is taking a number of steps. These include:
- Setting up dedicated teams to provide guidance to 60,000 businesses
- One-to-one support for 2,000 of the UK’s biggest employers
- Direct communication to 15,000 medium-sized businesses
- Workshops, online learning tools, roundtable meetings, and other published guidance for all businesses in the UK
Further to those provisions, HMRC has also published online IR35 resources for employers, contract-employees, and their intermediaries:
General IR35 guidance, employer-oriented:
- Preparing for changes to the off-payroll working rules (IR35)
- Working through an intermediary (IR35)
- Understanding off-payroll working (IR35)
- How to calculate the deemed employment payment
Advice for clients:
Advice for intermediaries:
- Public sector off-payroll working for intermediaries
- Private sector off-payroll working rules for intermediaries
IR35 Technical Guidance
HMRC has announced that it will release guidance for the technical implementation of the new IR35 rules. Chief amongst that technical guidance will be an enhanced version of the Check Employment Status for Tax tool (CEST) which will be updated for private sector businesses in late 2019. HMRC has worked to enhance the assessment capabilities of the tool, add clarity, and make it easier to use. Businesses do not need to wait for the updated CEST tool to become active to assess their workforce: HMRC will accept results from the current version of the tool (given information is entered correctly).
Businesses can also take part in a series of HMRC webinars dedicated to technical IR35 implementation. The current schedule for the webinars is:
- 12 November
- 21 November
- 12 December
Additional dates are set to be added to the webinar schedule.
For more information on the UK’s tax and payroll regime, explore activpayroll’s Global Insight Guide to the UK.