Budget blog: Government targets ‘off-payroll’ working in the Private Sector

31st October 2018

At present, the application of the off-payroll rules (known as IR35) rests not with the engager but with the Personal Service Company. For instance, if an individual (the worker) provides their personal services to an end user (the engager), but does so through the medium of a Limited Company (the Personal Service Company), it is the Personal Service Company (i.e. the worker’s own company) that is required to determine whether the arrangement is caught under the IR35 rules.

In April 2017 the Government changed the rules for arrangements within the Public Sector so that it was the engager that was now responsible for determining the correct status. As widely anticipated, these rules are to be extended to arrangements within the Private Sector. The slight surprise is that the change has been delayed until April 2020 (and will not apply retrospectively).

The rule change will also only affect those arrangements where the end user (the engager) is a large or medium sized business. For arrangements not caught because the engager is a small business, the existing IR35 rules remain in place. A further consultation is planned for the detailed operation of this reform.

As the change does not come in until April 2020, Contractors can start to consider the impact on their businesses now. As we have seen in the public sector, many engagers are taking the ‘belt and braces’ approach and applying the IR35 rules to existing engagements. As from April 2020, as it will be the engager in the private sector who now takes on the risk of applying the rules correctly rather than the personal service company, we anticipate that many arrangements will be considered to be caught under the IR35 rules (whether they actually are is another matter).  Contractors should be seeking to open a dialogue now with the engager to establish whether they are at risk of having the rules applied. If so then consideration should be given to changing the contractual terms of the engagement (which must be reflected in the actual working arrangements) in order for the rules to be circumvented.