HMRC releases Consultation Document for Off-Payroll working in Private Sector

Even after a lot of controversies surrounding its previous rule on Off-Payroll working in public sector, HMRC has decided to release consultation document for off-payroll in private sector. It was, although, announced earlier by HMRC that this rule could become a reality by April 2019 .The release of this consultation document indicates the focus HMRC has on ensuring that contractors who are perceived to be working as employees pay the right tax. The major reason HMRC gave was that as per its findings by 2022 -2023 non-compliance in private sector will reach £1.2 billion every year. Currently it estimates that only 10% of the people comply with off-payroll rules. IR35 was first introduced in 2000 to ensure that employees disguised as contractors or self employed and working through a company (like PSC) are taxed in the same manner as the regular employees.

Major points about the Consultation Document

• This is majorly for people who work through their own Personal Services Company (PSC), agencies and individuals who work through their own intermediary. Accountants, HR Managers and other agents representing such people should also read this document carefully.

• HMRC is inviting for comments on how to address the compliance challenges in the private sector. It will be holding workshops from May to June for the same purpose. One can also share its response by email or by post. A summary of the responses it receives will be published for the public on the second half of 2018.

• It states that non-compliance in the off-payroll in private sector is increasing constantly – from £700 million in 2017/18 to £1.2 billion in 2022/23. First, this is a huge income source for HMRC and second, it is highly unfair for honest people who are working as employees and paying higher taxes than people who are working on the same thing, but under different agreements like through a PSC.

• As per HMRC’s estimation, 1/3rd of people working through their own company should be taxed as employees. Taxes garnered from self-employed is less as compared to employees, which is why many people look to work as self-employed through PSC. As per it’s report, 2/3rd people are genuinely self-employed and hence need not worry about the off-payroll rule in private sector.

• As per its statement, it wants to learn from its experience in the public sector and implement it in the private sector.

You can read the full consultation here.

When will it happen? 2019 or 2020?

That’s a million dollar question for which we may have the answer. Below is the timeline followed for the key changes implemented in April 2017, after the roll out of the 2016 public sector consultation which could be repeated in respect of the private sector:

As noted above, If the same sequence of events happen in the private sector then the off-payroll rules may be with us by as early as April 2019.

What it actually means for the Contractors?

The implementation of IR35 in public sector should be a good learning for the contractors as well as for HMRC. There is a lot of confusion in the public sector and many genuine contractors have to face a lot of trouble owing to IR35. But all hope is not lost for the contractors. The recent results indicate that if a person is genuinely self-employed then they won’t have to worry much. This is evident from the recent case where an IT contractor won his case against HMRC in paying back taxes of £26,000.

How Contractors working in the Private Sector should prepare for IR35?

Although there is no telling as to when this rule gets implemented but looking at the current scenario and past experience of IR35 in public sector, it is safe to assume that HMRC will surely role out this by April 2019, irrespective of the responses it receives from the public regarding the consultation document. So it is imperative that the contractor hires an accountant who specializes in IR35 cases. As a sample, you can take a IR35 test by clicking on the below button and see how much at risk you are when the IR35 rule gets implemented –

All contractors must start preparing themselves with the help of an accountant to be on the safer side when the rule gets implemented.

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About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.