HMRC have issued a new briefing ‘Reform of off-payroll working rules’ about the extension of the rules to the private sector from April 2020.

The off-payroll working rules only apply in cases where, if you worked directly for the end client you would be deemed to be its employee in terms of the employment status tests.

From 6 April 2020, private sector engagements through personal service companies (PSCs) will be taxed in two different ways:

  • If the end client is medium or large sized and they assess that the off-payroll working rules apply and the PSC owner is paid the PSC's fee by its payer (usually an agency) after deduction of PAYE/NICs.
  • If the end client is small the PSC self-assesses the terms of the engagement under the normal IR35 rules and if IR35 applies, the PSC calculates the deemed payment and applies PAYE/NICs via its own payroll.

HMRC estimates that, outside of the public sector, only 10% of people who should be paying tax under the current off-payroll working rules are doing so correctly and that currently, an individual with an income of £50,000 who works through their own company, but doesn’t follow the rules, will contribute about £6,000 less than somebody doing a very similar job as an employee.

There are a few points of interest included in this latest briefing:

  • HMRC are advising that they will only use information resulting from the changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour. This means that those individuals who have not reached this standard of behaviour should not need to worry about HMRC going back 20 years based on information they provide to HMRC under the new rules.
  • HMRC will launch an enhanced version of the Check Employment status tool (CEST) before the end of 2019 and hope to make the tool clearer, reduce user error and enable it to consider more detailed information. Notwithstanding the planned changes HMRC says that it stands by the results given by the tool now, provided the information entered is accurate.

Links to our guides:

Personal service company (PSC) tax

Off-payroll working: PSCs & Private Sector Engagers

Employment status

IR35: Off-payroll working

External link:

HMRC issue briefing: Reform of off-payroll working rules

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