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New off-payroll rules apply only to contracts delivered in new tax year

Monday, 10 February, 2020

HMRC has announced that the coming extension of the off-payroll working rules (also known as IR35) to private sector employers will apply only to payments made for services provided on or after 6 April 2020, in order to give certainty to employers.

Previously, the rules would have applied to any payments made on or after 6 April 2020, regardless of when the services were carried out. This has triggered a rush by private sector organisations to ensure that the contractors they use submit their final invoices before the end of February 2020, so that the payments are made before the start of the new tax year.

The new HMRC concession means organisations will need to determine only whether the rules apply for contracts they plan to continue beyond 6 April 2020. Many off-payroll contracts are currently being terminated, as end-clients of contractor services try to reduce the risk of being found liable for income tax and national insurance contributions (NICs) that should have been paid by contractors, or by the personal service companies through which they work.

Detailed new guidance on the changes to the off-payroll rules, which shift financial responsibility for operating the rules to the organisation that engages the worker, have now been published in HMRC's Employment Status Manual. This sets out how and when income tax and NICs that the deemed employer should have deducted under PAYE will be recovered from the client or agency; how HMRC will assess whether the client took 'reasonable care' when determining whether the worker would have been an employee if they were engaged directly; and several other vital points.

However, the extension of the off-payroll rules to the private sector is currently being reviewed by the House of Lords Economic Affairs Committee’s Finance Bill Sub-Committee. The Sub-Committee has just issued a detailed call for evidence on the proposals. It asks whether HMRC's assessment of the compliance burden (including costs) is realistic, and invites comments on how the administrative burden of these measures could be simplified or reduced. Written evidence should be submitted to the Sub-Committee by 25 February 2020.