The Government has concluded its review into the introduction of the IR35 off-payroll worker rules (OPW rules) in the private sector. It has also confirmed that the legislation extending the rules to the private sector will be published in final form on 19 March 2020, and will come into force on 6 April 2020 as planned.
The OPW rules require companies to undertake an IR35 status determination for every contractual arrangement under which services are provided to the company by a contractor operating through a personal service company (PSC). Where the arrangement falls “within IR35”, the company engaging the PSC will be required to operate PAYE on the fees due. A failure to show that reasonable care has been taken in undertaking the status determination may result in a significant tax and NICs liability, plus interest and penalties.
The changes will have a huge impact on how businesses engage contractors. Further details on the applicability of the OPW rules to your business can be found in our earlier e-bulletin.
The Government announced its review into the OPW rules on 7 January 2020 following concerns raised about the private sector’s readiness for the changes. Its report, dated 27 February 2020, confirms that the changes will go ahead as planned on 6 April 2020, but will be subject to a number of measures to address the concerns.
- During the first year, HMRC will take a ‘light touch’ approach to penalties for companies which fall foul of the OPW rules. Companies will not have to pay a penalty on overdue tax and NICs unless there is evidence of deliberate non-compliance. However, any tax/NICs liability will have to be accounted for;
- HMRC will not use information obtained through the OPW rules to investigate historical status determination errors. HMRC will only investigate cases before 6 April 2020 where it suspects fraud or criminal behaviour;
- The OPW rules will apply to payments made for services provided after 6 April 2020. Services provided before this date but invoiced after it will not be caught;
- Employers will be under a legal duty to respond to information requests about the size of their business so that agencies and workers can assess whether the OPW rules apply;
- Organisations based wholly overseas with no UK presence will be exempt from the OPW rules. The responsibility for correctly determining tax status will therefore remain with the PSC;
- The timescales for appealing a status determination will be clarified.
HMRC is producing further guidance to support businesses and individuals in understanding the changes.