Caroline Harwood
Partner, National Head of Employment Tax
During autumn 2022 there was a brief period of uncertainty with a proposed repeal of off-payroll labour/IR35 rules in the September Mini-Budget and a subsequent U-turn on this when Jeremy Hunt became Chancellor. He made no further comment on the rules in his Autumn Statement – meaning that the special rules for engagers are firmly back on the table.
Off-Payroll labour involves the engagement of individuals for services that are paid outside the payroll. This could include consultants, subcontractors, associates or directors paid via an agency, a Personal Service Company (PSC) whether or not IR35 applies, partnership or on a self-employed basis. The individuals could be used in your business or for onward supply to your clients/customers.
HMRC will always test practices relating to the employment status of individuals, i.e. those engaged directly on a self-employed basis, to ensure taxes are correctly paid/withheld. For all contracts in force on or after 6 April 2021, HMRC further expects employers to consider IR35, the intermediary rules, offshore host employer rules and, where relevant, the public sector rules.
We offer two helpful tools to help you manage the impact and risk of off-payroll labour on your business.
IR35 in the Private Sector
The Government's response to its implementation review formally confirms that it will extend the IR35 reforms to the private sector from April 2021.
This means that if you engage workers who are paid off payroll, via a PSC or other intermediary, you will have to assess if the IR35 rules apply for all contracts in force on or after 6 April 2021. If they do, tax and NIC deductions may be required on payments made to the PSC and there will be an employer’s NIC liability for the paying party. As the IR35 rules have been in place for over two years HMRC is no longer taking a light touch approach to compliance and would expect all affected organisations to have implemented suitable processes to manage their compliance obligations.
We have a range of articles, updates and guidance on the implementation of IR35 in the private sector. Click here to read more.
Potential risks
The cost of getting things wrong can be huge and now is the time to identify and assess your organisation’s risks so you can start managing them down. Potential risks arise from engaging or being involved in the supply of any Off-payroll labour, including self-employed individuals, consultants, executive and non-executive directors (NEDs) invoicing via PSCs. The public sector rules are already in force but, for those in the private sector, the position must be considered and addressed prior to April 2021.
Tax risk assessment
Our Off-payroll labour tax risk assessment follows a three step process to help you manage down the off-payroll risks to your business. Working from your purchase ledger entries, we can help you easily to identify the potential areas of employment tax risk to your business, assess which areas and contracts represent the highest risk and establish what course of action should be taken to mitigate the key risks identified.
If relevant, the assessment will consider:
- Employment Status
- IR35 rules
- Public bodies and the intermediaries rules
- Private Sector and IR35 Reform
- NEDs and office holders
- Engagement of subcontractors within the Construction Industry Scheme
- Agency rules
- Offshore intermediaries
- Oil and Gas sector workers
- Intermediary reporting obligations
Off-payroll Tracker
Having identified your contractors, what do you do next?
Our Off-Payroll Tracker will help you decide when an individual contract will fall within the new rules (requiring a status determination to be made) or whether it will fall under the agency rules. It will also help you record details of every contract and document any formal status determinations that are made as well as track the appeal process where a contractor disputes the decision.
