Summary of Private Sector reforms (proposed for introduction in April 2020)
To increase compliance with the existing rules in the private sector, the responsibility for assessing an individual’s employment status will shift to end clients from April 2020. This will bring the private sector broadly in-line with the public sector where similar reforms were introduced in April 2017.
However, in the private sector the reform will only apply to large and medium-sized businesses, so in those instances where a PSC is providing services to a small end client, the reforms will not apply and the responsibility for determining employment status and making tax payments will continue to rest with the PSC. We currently await further clarification as to what criteria will be used to differentiate small, medium, and large businesses, but we expect it to follow the criteria set out in the Companies Act 2006.
When the role is in-scope of the reform (i.e. when the end client is sufficiently large as to qualify as a large or medium-sized business), and the end client has determined that the off-payroll rules apply, the business, agency, or any other third party paying the worker’s company (this entity will be known as the fee-payer) will need to deduct income tax and employee NICs, and also pay employer NICs (and potentially The Apprenticeship Levy). The workers’ company will therefore be in receipt of a “net” payment rather than the gross contract income.
In order to assist businesses in meeting their assessment obligation, HMRC will encourage end clients to use the CEST (Check Employment Status for Tax) tool. This tool is currently in use with respect to public sector engagements but has been heavily criticised for not accurately aligning with established case law.
Further developments in the private sector roll-out (infographic courtesy of Contractor Calculator):