The off-payroll working rules as they apply where the end client is a public sector body are to be extended to the private sector, applying from April 2020 where the end client is a large or medium-sized public sector organisation. Where the end client is a small private sector organisation (as defined for the purposes of the Companies Act 2006), the IR35 rules apply as now with the personal service company being responsible for deciding whether the engagement is within IR35, and working out the deemed payment if it is.
The legislation to extend the public sector off-payroll rules to the private sector has been published in draft. The rules, as amended, will apply equally where the end client is a public sector body or a large or medium sized private sector organisation.
A key feature of the rules is the need for the end client to determine whether the worker would be an employee of the end client if the services were provided direct to the end client rather than through an intermediary, such as a personal service sector client. The end client must produce a status determination statement and this must be passed by down the chain. To encourage compliance, the client will be treated as the fee payer if they do not pass the status determination statement to the next person in the chain.
The legislation provides a definition of a status determination, which is a statement that either the off-payroll working rules apply or that they do not apply. The client must provide a reason for the decision, and must also take reasonable care.
HMRC’s Check Employment Status for Tax tool can be used to reach a decision and, as long as the details entered are correct, HMRC will stand by the decision produced by the tool. A copy of the decision should be printed out and passed down the chain with the status determination.
It is important that you understand the rules if you are affected by them and their obligations under them, and have procedures in place to comply from April 2020, particularly where high number of status determination statements will be needed.
Written by the Tax Advice Network