Off-payroll working reforms delayed by one year

Less than a week after the Chancellor confirmed in the Budget that the reforms to the off-payroll working rules would go ahead from 6 April 2020, the Government announced that to help businesses deal with the effects of the COVID-19 pandemic, the start date for the reforms would be delayed by one year. The reforms will now take effect from 6 April 2021 rather than 5 April 2020. However, the Government are keen to stress that this a deferral not a cancellation and that the reforms will be introduced as planned, but from 6 April 2021.

So what does this mean for clients who either provide their services through an intermediary or who engage workers who provide their services in this way?

Under the reforms, medium and large private sector organisations will need to determine the status of workers who provide their services through an intermediary, such as a personal service company. Where the worker would be an employee if the intermediary is ignored, the fee payer must deduct tax and National Insurance from payments made to the worker and pay employer’s Class 1 National Insurance. End clients within the scope of the reforms will now not need to operate the new rules until 2021/22. For 2020/21, it is business as usual and where they engage workers providing services through an intermediary, they should continue to make payments to the intermediary without deducting tax and National Insurance. The delay also relieves the end client of the associated employer’s Class 1 National Insurance liability until April 2021.

For workers who provide their services through an intermediary, the IR35 rules will apply for 2020/21 as they do now, such that if, ignoring the intermediary, the worker would be an employee of the end client, the intermediary must calculate the deemed payment at the end of the tax year and pay the tax and associated National Insurance on that deemed payment over to HMRC. This will remain the case for 2020/21 where the end client is a private sector body, regardless of its size. Where the end client is a public sector body, it is the public sector rather than the intermediary which must determine whether the rules, and deduct tax and National Insurance from the payment made to the worker’s intermediary.

It is worth highlighting that the delay in the rules merely change who is responsible for deducting tax and National Insurance and bearing the employer’s National Insurance liability in 2020/21, not whether IR35 applies. If the worker would be an employee of the end client if the intermediary is ignored, IR35 remains in point. However, for 2020/21, it remains the intermediary who must operate the rules where the end client is in the private sector.

Written by the Tax Advice Network