As reported in today’s Guardian and as anticipated, yesterday the Chancellor confirmed that the changes made to off-payroll working in the public sector in April of 2017 would be extended to the private sector. Mercifully, for everyone involved in the hiring of temporary contractors who provide their services via a Personal Services Company (PSC), the Government has listened to calls for the changes to be delayed in order for affected stakeholders to understand how the changes impact their business and the steps they need to take. The rules will now take effect as of April 2020 rather than, as had been feared, April 2019.
What this means in practical terms is that as of April 2020 medium and large businesses (there’s been no definition of a small business yet) engaging with contractors operating via a PSC (otherwise referred to as Limited Company Contractors) will be required to determine if the new IR35 rules apply to each particular assignment. This can be done by reference to HMRC’s much-criticised Check Employment Status for Tax (CEST) tool. HMRC has committed to continue to work with stakeholders to identify improvements to CEST, which has attracted extensive criticism since its introduction in the public sector in 2017, but there are plenty of people concerned about the tool’s ability to give accurate and reliable results.
Where it is deemed the rules apply, the entity paying the PSC (effectively Contract Scotland) will be required to deduct income tax, and employee National Insurance Contributions and pay employer’s National Insurance Contributions.
The long and short of that is that where the rules apply one of a few things will potentially happen. The first is that the end-user client will face higher costs as Limited Company Contractors seek to preserve the rates they’ve become accustomed to earning. The second is that Contractors will find themselves making considerably less following deductions of income tax and national insurance at the source. And the third is the messy compromise of a little bit or both where no one ends up getting what they want.
Where it is deemed that the rules don’t apply, everything continues as it was before, so where Contractors are deemed to be genuinely self-employed, these rules do not apply.
Changes to tax law are never all that sexy and rarely grab the headlines but these changes, if implemented in the form currently being proposed, will have a significant impact and we’d advise all our clients and candidates to consider how the changes will affect them. There are still bodies who see these changes as an attack on the self-employed who continue to campaign for a rethink, but having been announced in yesterday’s budget, I think the working assumption has to be that this change will be implemented