Off Payroll rules come into effect in the private sector in April 2020, these rules as laid out in ITEPA 2003 PT2 CH10 detail a seismic change how Contractors engagements will be assessed and taxed.
If you are a contractor, recruitment agent or indeed a large organisation engaging contingent labour, it is essential you understand how these rules will impact your business and early preparation is essential to mitigate potentially catastrophic tax liabilities.
Historically, Contractors have been responsible for determining employment status, it has always been the contractors Limited company that was held liable for tax and National Insurance liabilities if deemed by HMRC to have been ‘caught’ by IR35.
Far from simplifying matters, the new off-payroll rules require that the end-client in the contractual chain now assess the contractor status, however under transfer of liability, it will be the fee-payer, typically the agent or party that sits above the contractor in the supply chain, that assumes the tax risk.
This implementation essentially has implications across the contractual chain for the end client, the recruitment agent, the PSC limited company and the worker.
These changes will significantly increase the cost of hiring contingent workers (temporary or contract workers) caught by the rules and the inevitable attempts by companies to mitigate their impact risk could cause project delays, struggles to source talent, and reduced workforce mobility.
At present, if a worker is deemed caught by IR35, employers’ National Insurance is deducted from their fees. But, under the new rules, Class 1 NIC along with any apprenticeship levy must be paid on top of the worker’s earnings by the fee-payer.
Although a recruitment agency will often qualify as the fee-payer, this cost would cause most agencies to fold if they genuinely had to contend with it so in reality the end client will have to cover this cost.
This new liability increases the cost of hiring ‘deemed employees’, that is contractors assessed as ‘inside IR35’, by 13.8% for employers’ National Insurance and 0.5% for the apprenticeship levy.
The rules also prevent workers from claiming tax relief on expenses, a withdrawal that will prove costly for those who travel and stay overnight for work.
The final concern is that contracts assessed at April 2020 returning a ‘Deemed Employment’ status may have retrospective implications if there has been a relationship prior to that date.
We specialise in providing planning and support to small limited companies and individuals operating in this sector, if you want to have a face to face conversation with one of our qualified Chartered Accountants or Chartered Tax Advisers about how these rules will impact you, contacts us today to book your free consultation.