Our important update for employers: extension of ‘off-payroll working rules’ to the private sector from April 2020

What changes are in store?

If implemented as currently proposed, the new rules will apply to certain contractual arrangements that a private sector business has with its workers or contractors. For example, if a business in the private sector contracts with an individual via his or her ‘personal service company’ (PSC), there are significant changes that would apply from 6 April 2020. For example:

• If the company determines that the worker is a ‘deemed employee’, the company must account for and pay tax, NICs, and the apprenticeship levy as if the worker was an employee. This is a fundamental change from the current position, which would require the PSC to meet any tax and NIC liability;
• The company will have to provide a ‘status determination’ to the contracting party and the individual worker, as well as having to provide reasons for the determination - if requested;
• Liability for tax and NICs will move along the supply chain in the event of non-compliance. For example, liability will be transferred to compliant businesses in the supply chain if HMRC is unable to collect outstanding tax and NICs from an entity because, for example, it has ceased to exist; and
• Companies will be required to implement a process for resolving ‘status disputes’.

Who will the new rules apply to?

The rules apply to private sector businesses (companies and non-corporate entities) above a certain size. Small companies will not be caught by the proposed new rules, and a small company is one which has any 2 of the following features:

• a turnover of £10.2m or less
• £5.1m or less on its balance sheet, and
• 50 employees or less.

A similar test, based on employees numbers or turnover (or both) will apply to exclude small non-corporate entities. Anti-avoidance provisions will be considered to ensure the small entity exclusion cannot be abused.

What should you be doing now?

• Identify all current intermediary engagements. For example, where you contract with a PSC; where you contract an individual via a UK agency; or where you contract with a PSC via a UK agency.
• Consider which engagements are likely to be caught by the new rules, based on current assignments.
• Review arrangements and consider potential additional costs, when you are renewing or entering into new contracts with contractors and clients.
• Review the relevant labour supply chain.
• Consider what system and process changes will be required for the future.
• Review and update contracts with third parties to ensure compliance with the new rules and to minimise risk, for example, indemnifying against the risk of other parties in the supply chain not complying with their obligations.