How will the changes in off-payroll working rules affect me?

Businesses, both public and privately owned, will be affected by the announcement in the Mini-Budget that the government has decided to abolish the off-payroll working (OPW) legislation with effect from 6 April 2023.

Introduced first into the public sector in 2017, and then into the private sector in 2021, after a covid related delay, the rules introduced a new top-down approach for deciding the employment status of workers who provide services via an intermediary.

The original IR35 rules, which had been in place since 2000, brought personal services performed via a personal service company (PSC) within the PAYE and NIC net where there was deemed to be an employment relationship between the worker and the end-client.  However, the OPW rules transferred the potential PAYE and NIC liability, and the decision maker for deciding employment status, to the end-client. 

Employment status is an especially difficult area for businesses to navigate, with no statutory definition of what is an employment. As a result, it has been left to the courts to provide the answer, with many cases being brought to define the correct test.  HMRC has its Check Employment Status for Tax tool, although the outcome generated by the tool has been shown to be incorrect in nearly half of tax cases taken to tribunal.

With some high profile off-payroll working errors within the public sector, notably the DWP and the Home Office, many in the private sector will welcome the abolition of these rules.

When the OPW rules were introduced, there was concern from some workers who had previously decided that IR35 did not apply to their working relationships, and so had not applied IR35 in their PSCs, as the decision as to whether there was an employment relationship was transferred to the end-user for the purposes of OPW.  At the time of introducing the OPW rules, HMRC issued a statement that they would not use the new OPW status as a base for opening historic PAYE enquiries into PSCs. With IR35 rules applying from 6 April 2023 and the PSC once again becoming responsible for deciding the employment status, it will again be another concerning time for contractors.