HM Treasury have published 'Review of changes to the off-payroll working rules: report and conclusion'. It is their response to the review of the proposed changes to the off-payroll working rules applying them to the private sector for the first time.
The review was announced in January 2020 and was followed in early February by a call for evidence by the House of Lords Finance Bill Sub-Committee. Both reviews looked at how to ease the implementation of the new rules, rather than the possibility of any major changes being made.
In their response, HMRC Treasury have announced the following changes to the rules and have confirmed there will be no delay to the 6 April start date.
- No penalties for errors in the first year, except in cases of deliberate non-compliance.
- Confirmation from HMRC that information resulting from changes to the rules will not be used to open new investigations into Personal Service Companies for the tax years before 6 April 2020, unless there is reason to suspect fraud or criminal behaviour.
- As already announced, the rules will only apply to services carried out from 6 April 2020.
- There will be a legal obligation, to be included in Finance Bill 2020, for end clients to respond to a request for information about their size from the agency or worker.
- Wholly overseas' organisations, with no UK presence, are to be excluded from the rules. The existing rules continue to apply.
Most of this information was already in the public domain before the review response was published. The exclusion of wholly overseas businesses is new and the legislation will be amended to include it.
The recent updates to HMRC’s Employment status manual are a direct result of the review. The guidance now includes multiple case studies and examples. It also sets out the process and fixed timescales for challenging a status determination statement. Since it is the end client who determines the status of the worker, they must lead the status disagreement process. If they do not comply with the minimum requirements here, the responsibility for the deduction and payment of tax and NICs will transfer to the client for further payments.
HMRC are to commission external research into the impacts of the reform six months after implementation, including research on how status assessments are being made.
Links to our subscriber guides
Personal Service Companies (PSC) tax
A Personal Service Company (PSC) derives its income from the activities of one individual. It is also a close company for tax purposes.
IR35: Off-payroll working
The IR35 tax rules apply when a worker supplies his personal services through an intermediary trading vehicle such as a company or partnership to an end client.
Off-payroll working: PSCs & Private Sector Engagers
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.
The employment status of an individual worker depends on whether the individual is engaged by the engager under a 'contract of service', or a 'contract for services'.