Off Payroll Working in the Private Sector – what contractors need to know

18th March 2019

Changes are being introduced to off payroll working in the private sector that will transfer the responsibility for determining the employment status of an engagement to the end client or ‘hirer’, rather than the contractor as is the case now. This change has important tax implications for contractors.

From April 2020, the government is planning to bring off payroll working in the private sector in line with the rules for the public sector. This relates to engagements with large and medium sized companies (as defined by the companies act) where a contractor provides services through a personal service company, rather than as an employee.

Under the new rules, however robust a contract may be from the Contractor’s perspective, the decision whether to apply the rules will vest with the engager or end client (the hirer).

The ultimate defence against being caught under the IR35 provisions is a properly constructed, contractually enforceable and defendable substitution clause (i.e. the Contractor has the unfettered right to engage a substitute to do the work on their behalf for which the Contractor will pay for). However, not all organisations are willing to include a clause allowing this and as such it will depend upon other contractual provisions and the position of the engager to determine the strength of any IR35 defence.

While it’s not yet certain how engagers will respond, we expect many may want to renegotiate terms such that contractors are deemed as employees for tax purposes only. With secondary national insurance contributions adding approximately 13% to the cost of the engagement, contractors may be faced with absorbing some or all of that cost through a reduction in rates. 

If you are in a position whereby a contract is due for renewal, or the terms are to be renegotiated in anticipation of the forthcoming changes, we recommend that you contact us before any terms are agreed to so that we can advise you of the taxation implications accordingly.

For more information, please contact Vanessa Glenn on vanessa.glenn@hboltd.co.uk or Neil Allcroft on neil.allcroft@hboltd.co.uk