Whilst the off-payroll rules were due to be in force from 6 April 2020 but were postponed due to the pandemic, the rules are to be enforced on 6 April 2021. These are part of the Finance Act 2020, which became law on 27 July 2020.
On 21 September 2020, HMRC published its up-to-date guidance on the off-payroll working rules and relaunched its customer and education support programme. The recent publication is stated to be the final technical guidance to be provided by HMRC as to how the new rules will be applied.
From 6 April 2021, it will be the client's (or commonly known as the end hirer) responsibility to determine whether the off-payroll working rules will apply to an assignment involving an individual providing services through a personal service company.
The starting point for the client to determine the individual's status will normally be the HMRC guidance and the employment strategy tax tool (CEST). HMRC have recently updated the CEST tool and published the Employment Status Manual (ESM 11000), which provides further guidance on specific work place situations.
This document was updated on 4 November 2020 and is worthy of consideration if you are an employment business who will be supplying intermediaries through their own personal service company, or a client who has to make a status determination statement as to the status of the working relationship in relation to the proposed assignment. Both documents are relevant for clients and fee payers as well as contractors.
The supporting guidance is at ESM11000.
However, it should be noted that the liability as to whether an arrangement is inside or outside the off-payroll regulations, or IR35 as commonly known as far as tax is concerned, will be with the fee payer - in most cases that will be the employment business. It will also be the case if an assessment is made by a client using reasonable care, but is decided to be subsequently incorrect by HMRC - the fee payer will be responsible for any unpaid taxes, interest or penalties. The guidance suggests that the client should act in a way that would be expected of a prudent and reasonable person in the clients position.
Therefore, it is expected that employment businesses who will in the main carry the responsibility for any tax liability as the 'payer' and challenge clients' status determination statements where concern arises.
In particular there is a need for employment businesses when analysing a status determination statement, particularly where the determination by the client is outside IR35 as they will be liable for any unpaid tax, interest or penalties if the determination is overturned by HMRC. They need to make sure that the client has asked the correct relevant questions, considered relevant and sufficient details and disclosure about the intended assignment before making the assessment.
If the off-payroll proposals are legislated in their current form, where HMRC disagree with the determination made by the client, then it will investigate and demand payment of any outstanding tax, interest and penalties under its recovery powers. Where there is a genuine business failure on the part of the fee payer and there is unpaid tax due arising from the assignment, HMRC are unlikely to pursue the tax further. However, if there is fraud involved then such waivers will not apply.
One piece of welcome news is that HMRC have confirmed that they are not interested in any status determination statements covering the period before 6 April 2021. Therefore, any matters relating to tax arising from an assignment will remain the responsibility of the individual contractor using their intermediary personal service company.
Where an umbrella company is used, they are likely to be the fee payer but will be making deductions at source in any event.
Next Steps For Employment Businesses
Employment businesses need to review their commercial relationship with their clients and contractors in the light of the updated CEST and ESM 11000 in readiness for the next financial year. Also, to ensure that they have a full understanding of the assignments that are to be entered into involving contractors through their intermediary companies supplied to their clients so as to evaluate the risk as far as IR35 is concerned.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.