The Government recently announced some significant changes to the off-payroll working rules from April 2023, which mean that, where relevant, the responsibility for determining whether a contract is ‘in scope’ of the rules will once again lie with the intermediary (eg, a personal service company) rather than the end user.
The introduction of the 2017 and 2021 legislation was due to the alleged non-compliance of limited companies in determining whether engagements were deemed employment. Reverting to the 2000 IR35 legislation would arguably be a backward step in enforcing compliance in this area and, until we see the new legislation, the Chancellor’s announcement raises more questions than answers.
However, it is important to note that the rules for public bodies introduced in April 2017 – and updated again in April 2021 – will continue to apply until April 2023. Also, care will need to be taken in the transition to the new rules and it is recommended that advice be taken in updating relevant policies and procedures.
Employment status is not just about off-payroll working
It is important to remember that the engager will continue to be responsible for assessing the employment status of individuals not operating through intermediaries (ie, sole traders) and office holders.
What is the immediate impact?
We have had confirmation from HMRC that public bodies and medium/large businesses in the private sector will need to continue to operate under the current rules until 6 April 2023. For services provided before 6 April 2023, the current rules will continue to apply, and the fee payer will need to pay workers through payroll, where they have been assessed as inside the off-payroll working rules, for any payments made on or after 6 April 2023.
Where there is an open HMRC enquiry into off-payroll working, HMRC will continue to progress the enquiry to its conclusion.
The outcome of any enquiries that have already been agreed will remain as they have been concluded under the existing legislation.
What will happen in the future?
Some of the questions that will need to be answered are:
- What are the tax-related and practical implications regarding an ongoing contract that is inside the off-payroll working rules and continues after 6 April 2023?
- Will HMRC use the evidence gathered over the past few years by end users to enforce compliance from PSCs from 6 April?
- How will the behaviours of service providers and agencies change from April 2023, eg will umbrella companies continue to be used?
- How can an engager best use this change in the law to ensure it is getting value from a fully compliant engagement?
We will be speaking to our clients in the coming days and weeks to consider the details and impact of the changes. If your organisation has received consultancy advice and support from PSTAX on Off-Payroll Working, please feel free to email your main contact to request an update or clarification in relation to any recommended actions or next steps.
PSTAX offers a range of services to assist with IR35 compliance, including consultancy, personalised in-person and online training, and two customised e-learning modules. Our courses are designed to aid hiring managers in effectively managing tax compliance risks in the public sector.