At Budget 2018, the Government announced its intention to reform the off-payroll working rules (known as IR35) in the private sector. The Government is now consulting on the detailed design of the planned reform. Existing rules will continue to apply for public sector organisations (which does include some charities).
The off-payroll working rules ensure that individuals who work like employees pay broadly the same employment taxes as directly engaged employees, even where they work through their own personal service company.
From April 2020, the Government will reform the off-payroll working rules by moving the responsibility for operating the rules – and deducting any tax and NICs due – to the organisation, agency or other third party paying an individual’s personal service company. The change will only apply to large and medium-sized organisations and will bring these organisations in line with public sector bodies and agencies who are already responsible for determining whether the off-payroll rules apply to engagements.
The Government has now published a consultation into the detailed operation of the reform – the deadline for responses is 29 May 2019. The consultation asks for views and information on a number subjects, including:
- the scope of the reform and impact on non-corporate engagers
- information requirements for engagers, fee-payers and personal service companies
- addressing status determination disagreements
The consultation also sets out how businesses can prepare for reform, and sets out HMRC’s plans to provide education and support for businesses that will be in scope of the changes.
Small companies will be exempt which will mean a large number of charities will be excluded. The Companies Act definition will be used – to be small a company must meet two of the following conditions
- annual turnover must be not more than £10.2 million (CTG has initiated discussions with HMRC about the definition of turnover and whether it should include donation and grant income or not)
- the balance sheet total must be not more than £5.1 million
- the average number of employees must be not more than 50.
The Government recognises that the Companies Act definition does not apply to non-corporate entities and that the balance sheet test in particular may not be suitable for all non-corporate clients. The Government therefore proposes two options for non-corporate entities which look only at the turnover and the number of
employees of the organisation.
- to apply the reform to unincorporated entities with 50 or more employees and to entities with turnover exceeding £10.2 million
- to apply the reform only to unincorporated entities that have both 50 or more employees and turnover in excess of £10.2 million.