Rollout of off-payroll rules to the private sector gets delayed

The Government was to press ahead with extending the off-payroll rules to the private sector next month, however these plans have now been delayed to 2021 due to the current health crisis.

From April 2021, every medium and large private-sector firm in the UK will become responsible for setting the tax status of any contractor they use, as is the case in the public sector.

The rules will only apply to payments made by private-sector businesses or agencies for services provided on or after 6 April 2021, and no retrospective charges will apply.

The Treasury is expected to adopt a “light-touch approach” towards penalties in 2021/22 as it seeks to address “fundamental unfairness” with non-compliant of the current rules.

Private-sector organisations and contractors had been fiercely opposed to the changes prior to a controversial report being published.

Tax experts expect the changes to reduce a worker’s take-home income by as much as 25% as contractors operating through a limited company face paying thousands of pounds more in extra income tax and national insurance contributions.

The review, which was announced in early January, was slammed for not having an independent chair and the insufficient amount of time to conduct a full review.

One of the biggest critics is the Association of Independent Professionals and the Self-Employed (IPSE).

Andy Chamberlain, deputy director of policy at the IPSE, said:

“From the start, this review has been recklessly inadequate. Not only was it not independently chaired, it was also rushed out of the door in less than two months.

“These tweaks go nowhere near far enough. If anything, this tinkering shows the Government knows the changes to IR35 will be immensely disruptive to business and contractors, but plans to forge ahead regardless.”

The rules mean that contractors, such as IT or management consultants, who work through their own limited company but are technically employed by a third-party organisation, pay the correct amount of income tax as employees, but without receiving the same employment rights.

Previous Government estimates suggest the move could boost the public purse by up to £1.2 billion by 2023 as a result of people getting the rules right, and correctly paying tax as if they were employed.

For further information on Off-Payroll rules or IR35, please contact Alan Rolfe on 023 8046 1235.