IR35: Scope of off-payroll rules changed from April 2020
Only payments for services delivered from 6 April 2020 will be subject to the off-payroll rules in the private sector, which is a switch from the rules applying to payments made, irrespective of when the services were performed.
HMRC made this sensible announcement on 7 February 2020. Now engagers and contractors can make a clean break from Monday 6 April 2020, such that the work performed by contractors from that day onwards is reviewed by the engager for compatibility with the IR35 rules.
Where that contract is determined by the engager (end-client) to fall within IR35, the person in the hiring chain who has responsibility for paying the contractor must deduct income tax and employee’s NIC under PAYE from any payments made for those services.
Where the services are performed by the contractor before 6 April 2020 it will continue to be the responsibility of the contractor and his personal service company (PSC) to decide if the work falls within IR35 and pay the right amount of tax to HMRC.
As originally drafted the roll-out of the off-payroll rules was to apply to payments made to contractors on and after 6 April 2020, irrespective of when the work was performed. This would mean that work performed in February and March 2020 would be drawn into the off-payroll rules, as where the payment terms were 30 days or more, payment for those services would not be made until after 6 April 2020.
However, some commentators like Qdos' CEO Seb Marley have questioned the timing of this announcement: “The government claims it is taking ‘early action’, but with less than two months to go until the off-payroll reform arrives, this is a last-minute change that could easily confuse businesses further – albeit a tweak to the rules that gives agencies and end-clients a few extra weeks to prepare,” commented Marley.
“Most businesses impacted by off-payroll reform have spent time and incurred costs changing arrangements to take into account the original rules. Nonetheless, our advice to agencies and end-clients is to use this time wisely – communicate with the contractors you place and conduct well-informed and case-by-case IR35 assessments,” he added.
This change in the trigger point from “payment date” to “performance date” has been prompted by the ongoing review of how the off-payroll rules will be implemented. That review is due to conclude later this month, but HMRC said the payment point was a common issue raised over the course of the review, and so it was giving businesses certainty by making the announcement of the change now.
This may not be the last change to the off-payroll rules made before the go live date of 6 April 2020.
The professional bodies who are involved in the implementation review have all previously called for a delay in the roll-out until April 2021, on the basis that the rules are over-complicated and will create compliance burdens for taxpayers, employers and HMRC. The CIPP has argued that a delay in delivery would benefit both employers and HMRC.
The House of Lords Finance Bill select committee has also launched a call for evidence into the draft Finance Bill 2019-20, which will focus on the extension of the off-payroll rules to the private sector. This committee will collect written evidence until 25 February, and is expected to issue a report sometime before the Finance Bill is passed in July 2020. This may be too late to prevent the new rules from taking effect in April 2020.
HMRC has rushed out updated guidance on the revised off-payroll rules published in a new section of its Employment Status Manual (ESM) at ESM10000 onwards.
This now states (at ESM10001a): “The new rules will apply to payments made on or after 6 April 2020 only where the services were also provided on or after 6 April 2020…If the services were all provided prior to 6 April 2020, but the payment was made on or after 6 April 2020, the payment would not be subject to the new rules.”