Secondary legislation on off-payroll working rules published

HMRC has published draft secondary legislation on the reform of the off-payroll working rules, due to come into effect from 6 April 2020. 

The changes extend the rules that already apply to the public sector to medium and large-sized organisation in the private sector.

A major risk for engagers under the new rules is in ITEPA 2003, new s 688AA under which the end client could become liable for tax and National Insurance when there is a failure further down the contractor/intermediary/engager chain to meet its IR35 obligations. 

The draft secondary legislation shows that HMRC will be able to recover income tax and National Insurance from the end client when the UK based agency – the deemed employer – has failed to make PAYE deductions from payments made in relation to an off-payroll worker and there is, according to HMRC, ‘no realistic prospect’ of recovering the outstanding income tax from the deemed employer ‘within a reasonable period’. HMRC must issue a recovery notice to transfer the debt within two years. The recipient of the recovery notice has the right to appeal.

The technical note that accompanies the draft regulations states HMRC will not exercise this transfer of debt power in the case of ‘genuine business failure’ of the party ordinarily liable to account for tax and National Insurance. There is no explanation as to what constitutes a ‘genuine business failure’.

The draft PAYE regulations also provide for the reporting of an off-payroll worker indicator on real time information (RTI) returns.

Referring to the review of the off-payroll working rules announced earlier in January, Susan Ball, RSM employer solutions partner, said: ‘Many businesses may have been hoping that this review and earlier responses to the draft primary legislation offered the possibility that some of the more controversial elements of the rules – notably those relating to the transfer of debt provisions – may be delayed or dropped. However, the publication of this draft legislation suggests that the government is pressing ahead.’

She urged all concerned – contractors as well as businesses and intermediaries – to read the draft legislation and submit any concerns before the consultation closes. Ms Ball concluded: ‘While there may be a very short window for minor changes resulting from the review to be included in the tabled final legislation, businesses and contractors need to carry on with their preparations with the expectation that the majority of the provisions contained in today’s draft and the primary legislation issued in July 2019 will reach the statute book.’

Comments on the draft secondary legislation should be emailed to offpayrollworking.intheprivatesectorconsultation@hmrc.gsi.gov.uk by 19 February.