UK Tax Proposals on Off-Payroll Work Progress

Our Thinking / Law and Policy Group /

17 July 2019

Draft legislative proposals to change how the UK’s “IR35” off-payroll working rules operate in the private sector would apply to contracts entered into or payments made on or after 6 Apr 2020. A consultation on the proposals published by the tax authority HMRC will close on 5 Sep 2019. The new rules would make private-sector organizations liable for determining the tax status of contractors who work through personal service companies (PSC) and ensuring payment of the correct amount of tax. A similar regime has applied to the public sector since 2017.

The government estimates that the proposals would impact 170,000 individuals who work through their own company, up to 60,000 private-sector organizations engaging workers through PSCs and 20,000 agencies that provide workers to medium and large-sized organizations.

Features of the Proposals

The main tax liability would lie with the person or business that pays the contractor. This end user would have to assess whether the contractor falls under the IR35 rules and pass on that assessment to the PSC. The PSC and any of its workers could challenge the assessment, requiring the end user to provide an explanation or a new determination. The proposals don’t include any recourse or right of appeal.
HMRC plans to upgrade its online status-testing tool to help end users determine whether the rules apply to a PSC, but the tool won’t have statutory effect.
Services based on output rather than the supply of personal services or labor won’t be subject to the IR35 regime.
Certain small companies would be exempt from the rules. The exemption would apply to organizations with a turnover not exceeding £10.2 million, a balance sheet not exceeding £5.1 million and no more than 50 employees. Anyone engaging a PSC for reasons unrelated to the individual’s business would be exempt from the rules.