Off-payroll working – extending legislation to the private sector

Since 6 April 2017, public sector employers (or an agency or third party that pays the worker’s intermediary for the public sector body) have been responsible for deciding if the intermediaries legislation (IR35) applies to workers. This means they will now have responsibility for paying the relevant tax and National Insurance Contributions (NICs) via payroll. Previously, the onus for IR35 was on the individual worker, usually through a PSC or another intermediary. The Government brought forward the relevant legislation as part of Finance Bill 2017.

An original commentary piece by Susan Ball (Crowe Clark Whitehill), which highlights in particular the difficulty of defining “public sector bodies” for the purposes of this legislation can be read here.

Following this change in the legislation, the Government commissioned some research to assess the initial stages of implementation. The results of this research have now been published, with evidence suggesting that so far the public sector reform has been effective in increasing compliance.

The Government therefore published a further consultation considering a number of potential options for tackling the high and growing levels of non-compliance with the off-payroll working rules in the private sector. These options included:

  • extending the public sector reform to the private sector, possibly subject to some adjustments
  • encouraging or requiring businesses to secure their labour supply chains and make sure that any off-payroll workers provided to them are complying with the off-payroll working rules
  • requiring clients that make payments (directly or through an agency) to PSCs to gather and retain information for off-payroll engagements

However, the fundamental principles of the off-payroll working rules – that the employment status test determines who should be taxed as an employee – were not considered as part of this consultation. Similarly, this consultation did not consider wider reforms of the taxation of employees, the self-employed, or those who work through an intermediary. A further article by Susan Ball, on the consultation, can be found here.

The consultation closed on 10 August 2018. While there is no clear rationale for a charity carve-out (nor is it proposed), CTG’s response to the consultation (the full text of which can be seen below) provided an opportunity to highlight the pressures charities could potentially face, in particular additional administrative burdens. The response also called for support for charities through guidance and close consultation with the sector .

The Government has since published a summary of responses document here.

The extension of off-payroll working in the private sector was subsequently announced in the 2018 Autumn budget. Responsibility for operating the off-payroll working rules will therefore move from individuals to the organisation, agency or other third party engaging the worker. CTG had called for more time for charities to adapt to the new rules in response to HMRC’s consultation and the Government has announced that the change will not be introduced until April 2020.

Small organisations (the threshold for which, as CTG understands from HM Treasury officials, will follow that set out in the Companies Act) will be exempt. HMRC has stated that it will provide support and guidance to medium and large organisations ahead of implementation.

Existing rules will continue to apply for public sector organisations (which does include some charities).

Off-payroll working in the private sector – CTG response 10 August 2018