Off payroll working in private sector delayed by a year to 6 April 2021

The UK Government announced last night that it has postponed for one year the introduction of this much criticised tax reform that would have had major implications for contractors and medium/large organisations.

Steve Barclay, chief secretary to the Treasury, said the deferral of changes to off payroll working rules would help businesses and individuals left struggling by the Covid-19 outbreak. It has been stressed that this is not a cancellation and the government remains committed to reintroducing this policy to ensure people working like employees, but through their own limited company, pay broadly the same tax as those employed directly.

IR35 has not been as successful as HMRC predicted and so, in April 2017, the Government introduced the off payroll working rules in the public sector. From 6 April 2021, the proposal is for these rules have been extended to medium and large organisations in the private sector, who will become responsible for determining whether the rules should apply, and for paying the right tax and NICs. This is a big shift of responsibility, as before 6 April 2021 the worker’s own personal limited company would be responsible under IR35.

Medium and large ‘end-clients’ now have just over a year to prepare for the significant changes in their contractor relationships. Please consider our Factsheet for Medium/Large End-Clients regarding the steps your organisation will need to take in due course.

If your organisation is a ‘small’ end-client, there are still actions you still need to take in due course. If a contractor or agency asks about the size of your organisation, you have 45 days to provide this information. Also your organisation will also have to check annually that it still qualifies as small. Our Factsheet for Small End-Clients will help you understand how these new rules will affect you.

All organisations (small, medium and large) are currently responsible for assessing the tax employment status for any workers who invoice in their own name (rather than through a company). This responsibility will remain and is unaffected by the off payroll working rules.

Contractors have the right to appeal the employment tax status decision made by their ‘end-client’. Many contractors working through their own limited companies are already in dispute with their ‘end-clients’ about this. The one year delay of these rules will give contractors some much needed breathing space and allow them to continue invoicing through their own company, without the deduction of PAYE and NICs. Our Factsheet for Contractors sets out the new rules in detail and will help you understand the consequences for your client relationships.