Insights overview

Off-payroll working rules: publication of secondary legislation allowing for recovery of income tax from third parties

HMRC published draft secondary legislation on the off-payroll working rules (IR35) on Wednesday, which will apply to the private sector from April 2020. It is available here.

In the words of HMRC, “the off-payroll working rules make sure that individuals working like employees, but through their own limited company, pay broadly the same Income Tax and National Insurance contributions (NICs) as individuals who are employed directly”.

The draft secondary legislation contains provisions which allow HMRC to recover PAYE income tax liabilities from other parties in the labour supply chain where the fee-payer has failed to make those deductions from the payments made to an off-payroll worker and there is no realistic prospect of recovering the outstanding income tax from the fee-payer within a reasonable period.

These provisions will be especially relevant to “prime” agencies which sub-contract to sub-agencies, so the “prime” agency does not pay the contractor directly, as HMRC will seek to recover tax liabilities from the first UK agency in the supply chain before moving onto the client. Agencies and clients must be aware of this risk, and carry out necessary due diligence on the fee-payer and the rest of their supply chain.

The secondary legislation is open for consultation until 19 February 2020.

For assistance with the off-payroll rules and whether they apply to your organisation, please speak to us.