Off payroll working in the private sector

The measure

The Chancellor confirmed that the proposed reform to the taxation of personal service companies (PSCs) in the private sector is to be implemented from 6 April 2020. Further, it was announced that this reform will not apply to the smallest 1.5 million businesses.

It is intended that the new private sector rules should largely mirror those implemented from 6 April 2017 in the public sector. This means that the responsibility for undertaking employment status assessments should now be the responsibility of the entity using the services of the worker, whilst the responsibility for operating PAYE withholding will be that of the entity paying the PSC.

Additional commentary has also been released alongside the announcement which confirms that HMRC are looking to improve their check employment status for tax (CEST) tool for undertaking employment status assessments, and that PSCs should not automatically find their historical tax affairs enquired into if the status decision that is reached now differs from the position it took in prior tax years.

Who will be affected?

All large and medium sized businesses. At this stage, the definition of a small business for these purposes is yet to be confirmed.

When will the measure come into effect?

This measure will be implemented with effect from 6 April 2020.

Our view

Even though this announcement was expected and the extended implementation timeframe is welcomed, it will still offer significant administrative, organisational, and technical challenges for businesses to be ready.

The timeframe gives nearly a year and a half for businesses to prepare for the changes and to ensure that processes and controls have been put in place to manage compliance risk. Our experience from the public sector is that it takes between nine to twelve months to prepare properly, and so action should be considered at an early stage to ensure readiness for April 2020.

The fact that the smallest businesses will be excluded from the changes, whilst welcome for some, adds complexity to the proposals, creating tiers within the private sector.

Businesses will be pleased to hear that HMRC intends to continue improving its CEST tool and its accompanying guidance, as this can form the basis for completing employment status assessments in a manner acceptable to HMRC.

Additionally, PSCs can take some comfort from the fact that HMRC will not automatically begin investigations into the operation of the tax rules in prior years where these new rules result in an engager determining a different employment status from that which the PSC had previously applied.