Off-Payroll rules (IR35) to be extended to private sector workers?

As mentioned in the Autumn Budget, the Government has opened a consultation into a possible extension of the rules that currently apply to “off-payroll” workers in the public sector to the private sector. This consultation is being undertaken at the same time as the consultation into employment status.

The IR35 rules introduced in 2000 are intended to ensure that people working through a Personal Service Company (PSC) who would have been employees if they had been engaged directly, pay broadly the same Income Tax and National Insurance Contributions (NICs) as if they were employed. However, it is estimated by HMRC that only 10% of individuals working in this way apply the rules properly, costing the Exchequer hundreds of millions of pounds in lost tax revenues every year.

Is it working in the public sector?

In April 2017, the Government reformed the rules for engagements in the public sector, and early indications are that this has resulted in an increase in public sector compliance. The April 2017 change requires the public sector body or agency, not the worker, to decide whether or not the IR35 rules apply and then deduct income tax and national insurance from payments to the worker.

There are however concerns that many of such workers are being treated as quasi-employees incorrectly. The consultation document states that there is evidence that some public authorities did have difficulties implementing the reform, both understanding the new rules and resolving disputes with contractors. HMRC have introduced the Check Employment Status for Tax service (CEST) software on their website to assist employers in reviewing workers’ contracts.

For further information on IR35 rules, please contact Alan Rolfe on 023 8046 1200.

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