In a report published on 27 February 2020 the Government has confirmed that the extension of the off-payroll working rules to the private sector will go ahead as planned from 6 April 2020. The report acknowledges that there remains some opposition to the changes, but states that "the Government believes it is right to address the fundamental unfairness of the non-compliance with the existing rules". In an effort to help smooth the transition as the reforms are brought in, the government has announced some measures to help businesses affected by the changes and the HMRC Employment Status Manual guidance has been updated.
The measures include the following:
- Businesses will not have to pay penalties for inaccuracies relating to off-payroll in the first year, except in cases of deliberate non-compliance
- HMRC has confirmed their previous commitment that information resulting from changes to the rules will not be used to open new investigations into workers' intermediaries (such as their Personal Service Companies (PSC)) for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour. This is intended to provide reassurance that a change in status as a result of the reforms will not result in HMRC opening an historic enquiry
- There will be a new legal obligation on clients to respond to a request for information about their size from the agency or worker. This will provide the certainty workers and other parties in the contractual chain need to understand whether the off payroll working rules apply
- Wholly overseas client organisations with no presence in the UK are excluded from having to consider the off-payroll working rules. This means current IR35 rules will continue to apply to engagements where the client is wholly overseas, so that the individual's PSC will continue to be responsible for determining the status of the individual
- Draft guidance on the reforms and clarifications have been provided by HMRC on some issues:
- if after going through the client’s status disagreement process, a contractor still disagrees with the client’s determination and they consider they have been taxed incorrectly as a result, the existing Self-Assessment and National Insurance processes can be followed by the contractor
- clarification has been providedon the meaning of what would amount to taking 'reasonable care' in making status determinations. HMRC expects clients to make a correct and complete determination, and keep sufficient records to show how the decision was reached. It lists examples of what behaviours might indicate 'reasonable care' (including using its Check Employment Status for Tax (CEST) tool for determining employment status and seeking advice from a qualified, professional advisor). It also lists matters that might not indicate that "reasonable care" has been taken, such as making blanket determinations, inputting inaccurate information into CEST and failing to take into account all the relevant evidence. It would appear from the guidance that clients may sub-contract the Status Determination Statement process but the client will not be taking reasonable care if it does not effectively take ownership of the decision by confirming the accuracy of the conclusion and the reasons for it
- Other areas on which guidance is given include the transfer of liability provisions, recovery from other persons’ provisions and outsourced services
- HMRC will "ramp up" its programme of customer education and support for businesses
- HMRC are launching further products to support contractors in understanding the changes, including a self-help guide on how to spot tax avoidance schemes.
New rules will only apply to payments for services provided on or after 6 April 2020
The new rules will now only apply to payments made for services provided by a contractor on or after 6 April 2020. Previously, the rules would have applied to any payments made on or after 6 April 2020, including when the services were carried out before 6 April 2020. This meant that a contract could potentially have been caught by the new rules even if it had already come to an end, where a payment was made in respect of it on or after 6 April 2020.
This change means organisations will only need to determine whether the rules apply for contracts they plan to continue on or beyond 6 April 2020. Where services are provided before and after 6 April 2020, HMRC guidance provides for a "just and reasonable apportionment, so that the new rules would apply to the part of the payment which can be reasonably seen to be for the worker's services provided on or after 6 April 2020."
Whilst we still await the final rules in the Finance Bill, businesses should continue to prepare for the new rules coming into force next month.