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Off-payroll working rules (IR35) to be extended to the private sector from April 2020.

In the 2018 Budget the Government announced it would extend reform of the off-payroll working rules (IR35) to all sectors from April 2020, meaning possible tax rises for freelancers in the private sector.

The off-payroll working rules have been in place since 2000 but these reforms are aimed at increasing compliance with the rules.

The government has proposed new draft legislation which would:

  1. Require organisations to assess the employment status for tax (of an individual whose services are being provided via a personal service company).

  2. Require the organisation, agency or other third party paying the individual’s personal service company to be responsible for deducting any tax and NICs due should the assessment establish employee status. The reforms contribute significantly to HMRC’s coffers in particular the employer’s national insurance contributions which have to be paid in those circumstances.

Some points to note:

  • Small companies, as defined by section 382 of the Companies Act 2006 will not be affected by the reform and will not need to determine the status of the off-payroll workers they engage

  • Calls for clarity on employment status for employment and tax to be resolved before this legislation is introduced have been rejected.

  • Enhancements are being made to the online Check Employment Status for Tax (CEST) tool, which are expected to be delivered before the end of 2019.

  • The government will be rolling out support and guidance for affected organisations, to include education events such as webinars.

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