Government consults on off-payroll working rules

The government is consulting on changes to the off-payroll working rules which will come into force from April 2020.

What changes to the Off-Payroll working rules will take place?

From that date, medium and large private sector end-user clients who engage workers through a personal service company will be responsible for determining whether the worker would have been an employee if engaged direct, rather than through a personal service company. In addition, the fee payer will have to deduct income tax and National Insurance Contributions (NICs) and pay employer NICs to HMRC.  Public sector clients are already covered by these rules.

Are there any exemptions to the changes?

The changes do not apply to small companies in the private sector and the government proposes to adopt the existing Companies Act 2006 definition of a small company.  This means that the changes will not apply to companies which satisfy at least two of the following criteria:

• Annual turnover not exceeding £10.2m
• Balance sheet total not exceeding £5.1m
• No more than 50 employees

The balance sheet criterion is not suitable for non-corporate entities and so the government proposes to use only the turnover and number of employees as the criteria.  It asks whether the entity should have to meet one or both of these criteria in order to be excluded from the new rules.  

What will be the impact on workers and clients of the proposed changes?

The government notes that the public sector rules do not require the client to provide its decision on employment status to the worker (it is required only to provide it to the party it contracts with), that there is no obligation to pass its decision down the chain so that it reaches the fee payer and that the worker and fee payer do not have a right to request reasons for the decision. It therefore proposes to introduce legislation requiring the client to provide its decision direct to the worker, requiring the recipient of the decision to pass it down the chain and giving the worker and fee payer (as well as the party the client contracts with) the right to request reasons for the client’s decision from the client. The government proposes that a party who fails to comply with these obligations would be liable for the tax and NICs until it meets its obligations.

The government also proposes that clients should develop and implement a process to resolve disagreements.  It is also considering legislating to allow fee payers to make tax and NICs-free contributions to a worker’s personal pension and is continuing to work on enhancements to the HMRC Check Employment Status for Tax (CEST) service.  

Responses to the consultation are required by 28 May 2019.