In anticipation of the extension of the off-payroll rules to the private sector in April 2020, the Government has published its draft legislation together with explanatory notes, policy paper and a fact sheet. You can access these documents here. The content of the draft legislation had been well-trailed during the consultations on the subject and there are no surprises in the publication.
For readers who are unfamiliar with the off-payroll rules, the effect is to shift the taxing point for the deduction of income tax and national insurance contributions from the personal services company of the individual who provides the services, to the organisation to which the services are provided. This result only comes about where an individual is delivering services in such a way that if the contractual arrangements are disregarded, the individual would be deemed to be an employee of the organisation receiving those services.
The policy objective, according to the policy paper, is to ensure fairness between individuals working in a similar way i.e. an individual who works as an employee would but does so through his personal services company, should be taxed in the same way an employee is.
The off-payroll rules have been in place in the public sector since 2018 and these same rules are now to be extended to the private sector. The draft legislation recently published is the consequence of a consultation during the Spring to identify issues particular to the private sector when extending the off-payroll rules and to amend the existing legislation to drive additional compliance with the rules. This draft legislation also extends the additional provisions relating to compliance to the public sector.
What are the highlights of the draft legislation?
- Medium and large sized corporates and the third sector will now be brought within the ambit of the off-payroll rules as they have applied to the public sector since 2018;
- Small companies which fall within the small companies regime are not caught by these rules;
- Provisions relating to information sharing have been introduced to ensure that determinations made by clients are communicated down the supply chain;
- In the event of non-compliance in the supply chain, the draft legislation allows for the transfer of liability to deduct income tax and NIC to the party in default;
- Provision is made for a status disagreement process which enables the worker and the fee payer to ask for reasons in support of the determination as to the status of the individual. This process is employer led.
The legislation will affect contracts entered into, or payments made, on or after 6 April 2020. This means that if a twelve-month contract is being entered into today (and payments under the contract will continue after 6 April 2020) it will be caught by these new provisions. Companies need to start considering this new legislation as early as possible to avoid inadvertently being in breach of the requirements.
One of the work streams companies should undertake is a review of their contractor population and the terms and conditions they are contracted under.