Carry on preparing as normal for off-payroll rules

While the government’s promised light touch approach to extending off-payroll working rules into the private sector does offer some reassurance, recruiters’ preparations need to continue as normal.

The call follows confirmation from the Treasury last week that the controversial extension of the rules will proceed as planned from April.

The government did, however, make a number of changes to address concerns, and support the smooth and successful implementation of the reform following consultation.

These include:

  • Customers won’t face penalties for errors relating to off-payroll in the first year – barring cases of deliberate non-compliance 
  • HMRC has reaffirmed that information resulting from changes to the rules will not be used to open new investigations into personal service companies (PSCs) for tax years before 6 April 2020, unless there is reason to suspect fraud or criminal behaviour
  • The government reaffirms the rules will only apply to services carried out from 6 April 2020 onwards
  • The government will legally require clients to respond to a request for information about their size from the agency or worker, and update the legislation to address concerns raised over the rules as they apply to off-shore companies.

Commenting on what government’s promised light touch approach will actually mean for recruitment agencies, Melanie Stancliffe, partner at law firm Cripps Pemberton Greenish, told Recruiter they will not have to be as anxious about miscategorising people as before.

“They have to prepare as normal. They have to show their best efforts to comply but I don’t think they have to be as worried about non-compliance. It’s not going to be as strict from the outset penalising approach. Ultimately, it’s not the recruiters that are going to be penalised it’s going to be the client but the client’s going to be annoyed if the individual provided to them is given to them as a contractor when they should be an employee and vice versa.”

Meanwhile Stephen Jennings, partner and solicitor at Tozers Solicitors, told Recruiter recruiters should government’s CEST tool as a starting point.

“It depends on how big they are. It’s going to affect medium and large organisations, not the really small ones.

“It can be helpful to anyone who is concerned about relations with contractors just to run through that tool and use it to give a preliminary view as to whether or not they are likely to be caught by IR35. If they are, then responsibility for tax and National Insurance falls on them so they have an issue and obviously they need to do something about it. It’s also worth agencies, as with any other employer generally, reviewing the arrangements they have with their suppliers and if they don’t already have contracts in place making sure those contracts are put in place and that’s it clear what the relationship is meant to be and who has liability for NI…

“It’s not definitive but it’s a good starting point, and you can use it to flag up whether there’s been an issue.

“If you run through the CEST tool and it comes back with a clearly negative response, then that’s a good starting point response if it’s ever challenged.

“It may not necessarily be the end of the story but it’s certainly a very good line of defence that you can run, which the government itself is prepared to say there’s nothing to worry about. Now if CEST flags that there is an issue, then plainly further steps need to be taken.

“It’s not definitive but it’s a good quick stop just to see if there’s likely to be an issue. If employers get a result that is unexpected because they’re expecting that there is likely to be a problem but CEST says there isn’t, then they would be well advised to just proceed on the basis that there might be a problem anyway. But for those that don’t know where to start then it’s a useful point to try to kick off.”

Carol Shaw, director at law firm Spratt Endicott, adds: “The changes to the IR35 legislation for the private sector mirror those changes that recruiters have had to be aware of when hiring into the public sector for some time. 

“Recruitment agencies need to ensure that all workers are engaged on the correct terms for the services that they provide, and may now become financially liable if HMRC judges that contractors were not paid correctly. This makes it more important than ever that due diligence is carried out before placing any contractor or temporary worker, and that recruiters are working closely with their clients on the status of their workers.”

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