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Off-payroll working in the private sector – what are the implications?

Off-payroll working in the private sector – what are the implications?
Paul Chappell
Written by
Thursday, 01 November 2018 09:16

In the Budget on 29 October, the Government announced that it will be extending reforms to the taxation of off-payroll working to the private sector from 6 April 2020.

These ‘deemed employment’ rules, or IR35 as it is called, has already been rolled out to the public sector and means that the responsibility for correct taxation for off-payroll workers has moved from individuals to the organisation, agency or other third party engaging the worker.

What is meant by ‘off payroll worker’ and how could it affect you?

So what does off-payroll working in the Private Sector mean and do Dataplan clients need to concern themselves with this change?

The second question is far easier to answer than the first. Will it affect Dataplan clients in the corporate work? For the most part, yes.

As for clarity on what it is, well here we go!

IR35 was brought into legislation in the days of the old Inland Revenue in 2000 and was known as the Intermediaries Legislation. It is counter avoidance legislation and originally placed the responsibility for considering whether the legislation applied on the worker. Hold on tight there is a long way to go!!

The legislation centres around employment status. But for the existence of the intermediary, the workers Limited Company for example, would the worker have been considered an employee?

The old legislation puts the onus on the worker to consider if they were caught by the legislation and therefore deemed employment should apply. Needless to say most such workers considered that they were not deemed employees.

Rule changes for public sector in 2017 and private sector in 2020

HMRC changed the rules for intermediaries engaged within the public sector, NHS, Education etc. from April 2017. The revised legislation placed the burden of assessing whether deemed employment was appropriate on the engager, the NHS for example.

Following a consultation process, from April 2020 the reforms to the off payroll working rules will extend to the private sector. 

There is now no escape, subject to an employer being classed as a ‘small organisation’, the engager is responsible in all cases for assessing employment status.

How do you define a ‘small organisation’?

A small organisation for the purposes of off payroll working in the private sector is a one that meets any two of the following criteria:

  • Annual turnover must not be more than £10.2 million
  • The balance sheet total must not be more than £5.1 million
  • The average number of employees must not be more than 50

If the engaging organisation meets the small business criteria, the responsibility for considering off payroll working will fall back to the Personal Service Company (the worker). Employment status is a subjective issue. HMRC have produce the CEST (Check Employment Status for Tax) tool however representations have been made to HMRC to improve the tool to meet the requirements of off payroll working and a number of tribunal cases have been won where the results of CEST assessments have been challenged. Watch this space on this one.

Advice should be sought if you are caught by the changes.

Paul Chappell

Paul joined Dataplan from HM Revenue and Customs in 2007 and runs our PAYE compliance and investigation services.

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