How do the April 2020 Off-Payroll Changes Affect You?

Despite many objections and predictions of gloom and disruption there are (at this time) to be no changes to the timetable announced by the previous Chancellor during the Budget in October 2018; as such the latest Off-Payroll legislation will come into force, as scheduled, in April 2020.

The proposed legislation will bring the Private sector into line with the Public sector (level the playing field) in terms of how Off-Payroll workers roles will need to be classified as either In or Out of Scope of the legislation. Once determined, by the hiring organisation, any payments made by the fee payer will need to be treated under the appropriate rules to ensure the correct taxes are being paid.

Sounds simple, but as ever the devil will be in the detail as many organisations struggle with the new burden of making a status decision and then applying their chosen methodology consistently across their business. Organisations will have to decide which tools they will adopt, with HMRC’s much maligned CEST (Check Employment Status for Tax) being one of the options. They will also need to make plans for the collection and payment of both National Insurance and PAYE where an assignment is in-scope, the worker is a PSC and they are the Fee Payer.

It is also proposed that smaller businesses be exempt leaving contractors with a PSC operating under current IR35 determination rules which may add an interesting twist to the market (further thoughts to be shared later)

The other interesting development is the decision to push for a hirer led appeal process whereby a contractor (worker) will be allowed to challenge an IN-Scope decision. This is certainly an area to watch as it could open up all sorts of scenarios if the employer does not respond within the determined timescales.

So big changes a foot and the clock’s ticking; some organisations already appear to have declared their hand and will remove all PSC contractors from their workforce, whilst others are looking at a more contractor friendly approach. Regardless of approach risk management is bound to be at the fore, be that in terms of potential HMRC action or the potential for a brain drain as contractors move to organisations who appear to have a less draconian implementation.

For project management practitioners, the impact where roles are classified as in-scope could be significant with Employers National Insurance needing to be funded at 13.8% and then NI & PAYE deductions. For many this will significantly impact their lifestyles and may require a fresh look at the economics of how they sell their labour.

What do Practitioners think of the Changes?

Over the course of the last couple of years since the changes were mooted for the Public sector we have been asking project management practitioners about the planned and implemented changes. The results of these were published in “IR35 & Its Impact on Project Management Domain” as well as the 2018 PMBR and the 2019 PMBR.

For private sector project management practitioners the results published in the 2019 PMBR gave an insight into how their peers in the public sector have fared since the implementation of the off-payroll legislation.

 

The good news is that many project management practitioners have been classified as out of scope meaning that they have been able to continue operating their business without new deductions.

However, for those that were caught, 29% indicated that the impact of the in-scope decision saw them negatively impacted between 21 to 30% in terms of their income.

 

Project management practitioners who are working in the private sector were asked to share their concerns about the new legislation which are plotted in the graphic to the left.

Highest on the list is blanket decisions, where the specifics of their operating situation are not taken into account when a client makes the in/out decision leaving them open to significantly higher levels of taxation.

There is also a significant concern that the market will be destroyed by the changes leading to uncertain futures for many who are currently operating as a PSC contractor.

Whatever happens over the next eight months it is sure to be interesting and all organisations and contractors need to be aware of the impacts they are likely to face. For many contractors, this change could seriously impact their wealth!

We at Arras People will be keeping across the changes and as a first step have created pages on our website for CLIENTS and also for CONTRACTORS which look at some possible first steps which can be taken now in preparation for this change.

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