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HMRC has updated its guidance on the extension of existing off-payroll working rules (IR35) to the private sector, scheduled for April, with a new contractor factsheet setting out the changes
Contractors will be affected by the changes to the IR35 rules if they work through an intermediary, such as a personal service company (PSC), and provide services to public sector organisations or medium or large-sized organisations, defined as having a turnover of more than £10.2m, a balance sheet total of £5.1m and/or more than 50 employees.
From 6 April, medium and large-sized organisations in the private and third sector will be responsible for deciding the employment status of contractors for tax purposes, as has been the case in the public sector since April 2017. Currently, contractors themselves are responsible for making this decision in these sectors.
Under the reforms, the organisation hiring the contractor for their services will now determine their employment status for tax purposes and will provide a ‘status determination statement’. This will set out the determination the hirer has made and the reasons behind this.
If an organisation determines a contractor is employed for tax purposes, they (or the agency they have hired the contractor through) will pay the necessary tax and National Insurance (NICs) before they pay the contractor.
If the organisation determines that a contractor is self-employed for tax purposes, the contractor will remain responsible for meeting their tax obligations.
The HMRC factsheet warns that depending on a contractor’s own personal circumstances the terms of their contract may change.
The factsheet states: ‘It is also possible that you will pay additional income tax and NICs if you had not previously been applying the off-payroll rules (IR35) correctly. However, HMRC will not use information resulting from these changes to open a new enquiry into earlier years unless there is reason to suspect fraud or criminal behaviour.’
HMRC points out that where the rules apply, it is important to note that, unless contractors have a direct employment contract, they will not be classed as a direct employee of the hiring organisation they provide their services to. This means they will not be entitled to statutory payments or employment rights from them.
From 6 April, if a contractor disagrees with the result of the determination, they will have the right to dispute it through their hirer’s status disagreement process. Contractors will need to contact the hirer, explaining why they are challenging the outcome, and the hirer will have 45 days to respond.
HMRC’s factsheet emphasises that the changes do not affect the self-employed. It also points out that contractors do not need to take any action before April, although if they think they may be affected they should seek a status determination statement from their hirer.
While the factsheet references the review the government has launched into the implementation of changes to the off-payroll working rules, it makes clear that these remain due to be introduced on 6 April.
The review’s aim is to gather evidence from affected individuals and businesses to ensure smooth implementation of the reforms, but a number of contractors’ organisations and professional tax bodies have criticised the short timescale available for making any changes.
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