Off-payroll: What guidance is available?
Reforms to off-payroll working (IR35 tests) are coming to the private sector in April 2020. Lucy Webb investigates what guidance is available for accountants and contractors.
The general election should not, in theory, delay the passing of the Finance Bill 2019/20 containing the off-payroll rules for the private sector, so we still anticipating an April 2020 rollout.
In the following article, Lucy Webb examines six pieces of guidance from around the tax, business and contracting world and explains who the guides are tailored towards.
- HMRC’s guidance
HMRC’s offering leaves a lot to be desired. While further detailed guidance and an updated Check Employment Status for Tax (CEST) tool are promised to be released later in 2019, for now we have a policy paper, which links to other pieces of guidance available elsewhere on HMRC’s website.
The guidance is very light-touch at times. However, where more detailed information is provided (such as how to identify the size of a client) HMRC’s language is far from clear. When discussing the simplified test it says:
“You must apply the rules from the start of the tax year following the end of the filing period for the second financial year when you met the conditions.”
This may be decipherable to accountants, but other HMRC ‘customers’ could struggle to work out what period is which.
Who this guide is for: practitioners who would like a broad overview of the upcoming changes and how CEST can be used to reach a Status Determination Statement (SDS).
IR35 guides for accounting and tax professionals
There are other resources that provide a little more insight into how the off-payroll reforms are expected to operate.
- ICAEW TAXguide 14/19 (requires paid-for subscription)
This ICAEW Tax Faculty guide covers all the key areas of the IR35 reforms, from SDS to transfer of liability, while also providing helpful in-depth examples and practical points that highlight how the legislation is likely to play out in the real world.
For instance, there are detailed examples of how to determine a client’s size, as well as an easy-to-follow illustration showing how the transfer of liability provisions should work in practice.
Who this guide is for: accountants and tax advisers who want a deeper dive into the workings of the new regime and want to see some worked-through examples of practical aspects of the reforms.
IR35 guides for contractors
It is also important that the workers who contract through intermediaries understand what changes are underway. There are a few guides that focus on the contractor-led issues of the IR35 reforms, with some highlights being:
- The Association of Independent Professionals and the Self Employed (IPSE)
IPSE’s ‘A Guide to IR35’ is a high-level, plain-speaking overview of the IR35 legislation. It provides a few concise examples of the hallmarks of IR35 such as substitution, control and mutuality of obligation, and briefly considers what happens if an engagement is deemed to fall within IR35.
However, IPSE’s guidance is notably light on the public and private sector reforms. On those aspects, it could do with an update as the information is only correct to May 2019, before the draft off-payroll legislation for the private sector was published.
IPSE was initially formed in opposition to the original IR35 proposals, and this stance becomes apparent at certain points in its guide, such as its view of HMRC’s CEST tool.
Who this guide is for: practitioners who want contractor clients to be up to speed with the basics of the IR35 legislation and understand when it may apply.
- IT Contracting
While this guide is aimed at IT contractors, the information contained is useful for contractors working in other industries as well.
There’s a lot to like about this guide: it’s simple to understand, explains the basic principles of IR35 and also dives into the reforms in enough depth that a contractor should come away with a good understanding of what’s changing and how these changes may impact them.
It also covers questions that contractors are likely to ask eg do I have employment rights if deemed to be a disguised employee, what happens if I have contracts with multiple clients and how will I get paid.
Who this guide is for: contractors that want to understand IR35 in more depth but who don’t want to read the legislation.
Guides for payroll
The following guides have been designed with payroll professionals in mind. While they don’t offer all the answers, they serve as a useful point of reference when understanding how payroll and the IR35 rules will interact under the new regime.
CIPHR’s guide offers a solid overview of the private sector off-payroll working reforms from an HR and payroll perspective, with a clear outline of what the IR35 legislation is, why reforms are being introduced, and what changes to expect.
It seeks to answer a few questions more specific to the world of HR, such as: will hiring post-IR35 be a challenge? It also provides an action plan for both the pre-2020 and post-2020 period, with links for further reading.
However, there are some deficiencies to be aware of. For example, the guide comments that “Holiday, sickness absence, parental leave and employer taxes for workers deemed to be employees will be due”. This isn’t technically the case, as HMRC has said that workers that provide services through intermediaries are not entitled to employment rights, such as holiday pay.
Who this guide is for: despite the technical hiccups, this guide is a great resource for HR or payroll professionals who want to understand more about IR35 and how the private sector reforms may impact their day-to-day work.
Kate Upcraft’s article focuses on the practical payroll aspects of the IR35 reforms that haven’t been covered by HMRC’s guidance to date.
Acknowledging that there are HR, finance, and payroll challenges when dealing with a ‘deemed employee’ contractor, Kate highlights practical steps that payroll professionals should consider, including creating appropriate payroll records, applying the correct tax code, and how to pay deemed employees and PSCs.
Who this guide is for: payroll departments looking to further understand how to apply the new off-payroll working rules.
If you've found other relevant guidance do let us know in the comments below. *7/11/19 - This article was amended to reflect that one of the guides requires a subscription to access.