This year has seen HR teams having to respond quickly to new regimes, where the rules were necessarily introduced in haste and HMRC guidance continually playing catch up. The disruption has had a massive impact on businesses and their employee's life; and HR professionals may yet have more disruption to come.
So, what is the good news?
The planned changes to IR35, extending off pay-roll working rules to the private sector, which were due to come into force in April this year were postponed until 6 April 2021. Hopefully, unlike the Job Retention Scheme, the massive shift to home working and managing COVID safe returns to work, plans for off-payroll working rules will have been partially progressed earlier in the year and can now be dusted off and revisited ahead of this "new" date.
A lot has happened this year, so it's worth a reminder of what the off-payroll rules are and what you need to do.
What are the off-payroll rules?
The off-payroll rules apply to payments made by public authorities and, from 6 April 2021, medium and large private sector clients to intermediaries, where the nature and conditions of the engagement are such that the underlying worker would be classed as self-employed (for tax purposes) if the intermediary is ignored.
It will be the client's responsibility to assess the relationship between the client and the worker to determine if it would be one of employment or self-employment were it not for the intermediary. If the worker would be treated as employed, then the client (or if there is another fee payer in the chain, that fee payer) must make payroll and NIC deductions as well as paying employer NIC.
It will be necessary to assess existing contracts before the first payment is made after 6 April 2021, and issue "Status Determination Statements" before services are provided, ideally before the contract is signed as the outcome could have an impact on the intermediary's pricing. Failure to do so can result in the client being responsible for payroll and NIC deductions by default.
Although there are other tools available, HMRC agree to be bound by a determination made by their CEST tool, assuming there is no manipulation to achieve a particular outcome. While CEST has been updated with more detail, it still has limitations in relation to particular industries and their operational peculiarities e.g. O&G, financial services, IT and construction. This is less than ideal and can leave clients uncomfortable with the outcome provided by CEST.
What should we do?
Many of you will have started to address this change ahead of the intended April 2020 introduction, so you should dust down those plans and remind yourself where you have got to. If you were less prepared in early 2020 than you would like, our key steps plan can help get you started.
Reassemble your team. This is likely to involve a cross departmental group from HR, procurement, tax and finance. From there you should revisit your contractor population and review where you got to with each contractor's assessments. Depending on the impact of COVID and the need for flexibility, your contractor population and their working terms may well have changed.
If you had assessed contractor relationships previously, it is worth revisiting these assessments to take account of the impact of our new working environment. With compulsory home working facilitated by employer's / client's kit, contractors not incurring the same level of expenses, and new engagements entered following termination of long term contracts or breaks in engagement, the distinguishing factors we have come to rely on may be harder to assess using CEST. This makes it more important to understand the actual working arrangements for each contractor and it may be useful to start to engage with them on this.
With just under six months to go until implementation there is still plenty time to prepare and implement the necessary changes ahead of April 2021, but worth laying the ground work soon.
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