Private Contractors Be Prepared For Off-Payroll Working Rules

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HMRC (Her Majesty’s Revenue and Customs) have gone about opening a new consultation which they call ‘Off-payroll working rules from April 2020’ which will have an impact on all private contractors and contractor accountants. The new consultation is about applying the current public sector off-payroll working rules to the private sector from 6th April 2020.

The off-payroll working rules

The chancellor made public the public sector-off payroll working rules at the budget 2018. The rules which made their debut on 6th April 2017 will be in effect from April 2020 for medium and large businesses in the private sector.

  • All medium and large businesses, as per the Companies Act definitions, who are using individuals who work through a Personal service company (PSC) must decide whether the Off-Payroll working rules will apply to the engagement.

  • All small companies will be unaffected. If a company becomes or stops being classified as a small business in an accounting period, the off-payroll working rules change will apply from the beginning of the tax year which will follow the end of that accounting period.

  • Unincorporated entities should have a look at these two options.

    • The rules will apply to unincorporated entities who have 50 or more employees as well as to entities with a turnover of more than £10.2 million.
    • The rules will apply to unincorporated entities which have both 50 or more employees and turnover which is over £10.2 million.
  • If the rules apply to an organization, the business, an agency or a third party which pays the worker’s company must deduct income tax as well as employee NICs and pay employer’s NIC.

Contractor accountants or contractor specialists would be a wise investment to understand your firms position on the matter.

HMRC has elaborated by saying that the cost of non-compliance with the off-role payroll working rules in the private sector has been projected to touch £1.3 billion a year by 2023/24.

The consultation has proposed that all of the new rules should mirror those for the public sector. However, there must be adjustments made because of the difference in the needs as well as activities that the private sector faces when compared to the public sector. HMRC has made the following proposal.

  • A requirement for all clients to determine their status regarding the off-payroll worker as well as fee payer along with the reasoning behind these determinations.

  • A client-led status disagreement process must be introduced in order to work around status determination disagreements between the off-payroll worker and the client.

As already mentioned, it would be wise to look for contractor accountants or contractor specialists so that you can verify your position on the matter. If you believe you might be affected by the off-payroll rules you should start making necessary arrangements to make sure you are covered to avoid coming within this legislation.

Clear House Accountants are specialist Contractor Accountants who stay ahead of legislation making sure that bespoke solutions are designed for potential problems our clients might face. Contact us if you are a contractor and are worried about off-payroll working rules impacting you.

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