Discussions should hopefully be well underway now regarding how to meet the new off-payroll working rules (known as IR35), currently due to implement in April 2020. To recap, these reforms, introduced to the UK public sector in April 2017, will now be extended to large and medium sized businesses in the private sector.
These changes are particularly relevant where an individual supplies his or her services through an intermediary known as a personal service company (PSC), and this would be irrespective of whether the PSC is supplied directly, through an agency or even a chain of agencies or a Managed Service Provider (MSP).
Prior to the public sector changes in 2017, it was the responsibility of the PSC to assess whether IR35 applied (and subsequently operate the correct amounts of tax and national insurance), however, this has been open to historic and widespread abuse leading UK tax authorities (HMRC) to re-evaluate this approach. Fast-forward to April 2017 and within the public sector it became the responsibility of the end-user to make an assessment of whether the role was inside or outside of IR35 and the responsibility of the fee payer (the party that pays the PSC) to withhold the correct statutory burdens. Where we find ourselves today is that, in April 2020, this change will come across to the private sector meaning end-users and recruitment businesses need to prepare.
Latest News and Developments
The government had an open call throughout May for consultation on how best to extend the implementation of the IR35 reform — it informed the draft finance bill legislation. The consultation does not, however, focus on whether the off-payroll rules should go ahead in the private sector as this has already been confirmed through the 2018 Autumn Statement.
What is does focus on is the test for what constitutes a large or medium sized business and is therefore in scope of the legislation as well as tackling roles and responsibilities within the supply chain (for example, within a lengthy supply chain the notion is raised in the consultation that the end-user should hold the responsibility to pass the determination and associated reasons to the worker, the entity they contract with and the fee payer). Draft legislation is expected in July 2019 with the final legislation coming in November 2019.
What Preparations Should be Taking Place Now?
Although the legislation does not come into effect until April 2020 — the time for action is now. End users should discuss internally and with their supply chain partners how to assess incumbent workers, map out a communication strategy, and review procedurally what this would look like within their organization.
Perhaps most importantly at this time, end users need to gain visibility into their PSC workforce and understand how these are supplied to their business, who the heavy users of PSC contractors (and thus be most impacted by the changes) are, and determine whether these roles are likely inside or outside of IR35. In order to get to grips with all of this, it is recommended that end users undertake a workforce assessment to first gain the required visibility and then grade this population according to skills criticality and importance to the business.
The key here is to understand which of your PSC contractors possess skills which, should they leave the end user, would be difficult to backfill and this may be important to making informed decisions if (and perhaps when) discussions happen regarding rates. From here a sample of PSC contractors can be selected and tested using the Check Employment Status for Tax tool (or CEST as it is known). This online tool was created by HMRC for the purpose of assisting end users and other parties in the supply chain and, while its come under criticism from the industry, HMRC continues to publicly back the tool.
The benefit of doing such a test now is clear – it will provide the organization with an understanding of the process involved to complete the tool, plus enable them to make further decisions over how to test the remaining PSC workforce. Remember end users have a responsibility to ensure reasonable care is taken when evaluating roles and so this must be considered through the testing process.
Temperature Check on Timelines
With so much to think about its understandable end-users and those involved in the supply of labor are feeling a little daunted with what lies ahead. The good news is that there is still time to move forward and prepare. In order to support this effort, PRO has produced a detailed month by month calendar of the main tasks that need to be considered and undertaken, and in what order.
We believe that, by following the activities and guidelines outlined in the Planning Calendar above, your organization will hit the key milestones required to be ready for the implementation of the off-payroll working rules when April 2020 comes. A word of caution though – with the deadline fast approaching and the roadmap full of activity, the time for action is now.
If you’re interested in learning more about how PRO is helping organizations implement winning contingent workforce programs globally, please contact a PRO representative at 800.291.1099 or email at firstname.lastname@example.org.
Disclaimer: The content in this blog post is for informational purposes only and cannot be construed as specific legal advice or as a substitute for legal advice. The blog post reflects the opinion of PRO Unlimited and is not to be construed as legal solutions and positions. Contact an attorney for specific advice and guidance for specific issues or questions.