Legal briefing | Incentives & Remuneration, Employment |

The New Off-Payroll Working Rules: What do you have to do?

Overview

The new Off-Payroll Working Rules (the 'New Rules') will come into effect from 6 April 2021.  Organisations engaging the services of workers through intermediaries both directly as well as through agencies, will have greater administrative and financial burdens under the New Rules. We can guide you through the changes and the steps you should follow to take account of them.

The current state of play

The New Rules were due to take effect from 6 April 2020.  However, on 17 March, the Government announced that the changes would be delayed by one year as part of a package of measures to ease pressure on businesses in light of the coronavirus outbreak. 

The Government has, however, made it clear that this is a delay and not a cancellation of the New Rules which will now apply from 6 April 2021. Many companies have already planned or made changes to the way they engage contractors. 

The New Rules in a nutshell1

In summary, the New Rules will affect fee payments made in respect of workers who provide their services through intermediaries such as personal service companies (PSCs) and will apply to payments for services performed from 6 April 2021. 

Essentially, clients engaging such intermediaries will need to decide whether, if you ignored the existence of the intermediary, the worker would be regarded as their direct employee (or office holder) for income tax purposes.  If they would, then the client (or the agency paying the intermediary if different) must deduct income tax and NICs from the fees paid to the intermediary and account for employers' NICs (and apprenticeship levy if relevant) as if the fees were payments of salary.  The rules are an extension of the existing tax regime known as IR35 under which the intermediary (rather than the end client) decides the status of the worker and accounts for any tax and NICs due.  In response to concerns that many intermediaries were not complying with their obligations under IR35, in 2017 the Government changed the rules for public sector clients by moving responsibility for determining status and accounting for tax from the intermediary to the client.  The New Rules will extend the public sector changes to medium and large clients in the private sector and make additional modifications.  IR35 will continue to apply to intermediaries that provide their services to private sector clients that are small or have no UK connection in a tax year.

1  This guide sets out the New Rules by reference to the draft legislation and guidance available at the time of writing.  We do not expect these to change fundamentally but it is possible that the final rules will contain some modifications.

When do the New Rules apply?

The New Rules only apply to payments made for services carried out on or after 6 April 2021.  If a payment is made for services provided both before and after 6 April 2021 there are transitional provisions that allow a 'just and reasonable' apportionment to be made.  The New Rules will apply to the part of the payment that can be reasonably seen to be for the services provided on or after 6 April 2021. 

For guidance on whether you are within the New Rules please read our companion article, 'The New Off-Payroll Working Rules: Do they apply to my business?'.

What do you need to do under the New Off-Payroll Working Rules?

Now Reading

We've heard that we need to issue a 'Status Determination Statement' to workers. What is this and who do we need to send it to?

Whenever you engage the services of a worker through an intermediary such as a personal service company (PSC) you need to prepare a status determination statement (SDS). In order to do so, you must first consider whether, ignoring the existence of the PSC, the worker would be regarded as your employee (or office holder) for tax purposes. Your SDS will then need to state either of the following:

  • You have concluded that if the services were provided under a contract directly between you and the worker (ignoring the PSC), the worker would be regarded as your employee for income tax purposes (or the holder of an office with you or, if the worker is already the holder of an office with you, that the services relate to the office) and the reasons for that conclusion; or

  • You have concluded that if the services were provided under a contract directly between you and the worker (ignoring the PSC), the worker would not be regarded as your employee for tax purposes (or the holder of an office with you or, if the worker is already the holder of an office with you, that the services do not relate to the office) and the reasons for that conclusion.

There is no set format for an SDS or any prescribed method for sending it but you must ensure that the recipient has seen it.  You need to produce a status determination statement for each contract that you enter into and will need to carry out a review of them from time to time. The statement is therefore not simply a 'one off' (see the answer to Question 9). 

The SDS needs to be given to the worker - this includes workers that your determination shows are not within the rules and also workers that you engage through a third party such as an agency. If you don't contract with the PSC directly, the SDS also has to be given to the person or organisation you have contracted with. The SDS should be issued on or before payment is made under the contract. 

You will need to keep detailed records of your SDS - we would suggest this includes a copy of the SDS and a copy of the checklist/CEST report (see the answer to Question 8 for an explanation of what this is) and any other background information behind the reasons for your determination. Even if HMRC ultimately disagree with your determination, the SDS you have given will be valid as long as you have taken reasonable care over it. Failure to take reasonable care will leave you liable for any tax or NICs due in respect of the arrangement, even if you are not the party that pays the PSC.  HMRC has issued guidance on the meaning of 'reasonable care' which it summarises as 'acting in a way that would be expected of a prudent and reasonable person in the client's position'.

How do I decide if the worker would be regarded as my employee (or office holder) for tax purposes?

This requires careful legal analysis, but in summary, it involves notionally ignoring the existence of the PSC and imagining that the worker is engaged directly by you. If the worker would be regarded as either a direct employee or office holder of yours, then the New Rules will apply and payments made in respect of the worker's services will be taxable like salary. 

HM Revenue & Customs (HMRC) looks at a variety of factors in order to determine whether a person is in business on their own account or an employee, including the following:

  • the level of control exercised by the client over the worker;

  • whether the worker is required to provide personal service or whether the worker has the right to substitute themselves for someone else;

  • whether the worker has to provide their own equipment and tools of the trade;

  • whether the worker has the opportunity to profit from sound management/financial risk/basis of payment;

  • whether there is mutuality of obligation between the parties (which requires the client to always provide work and the worker to always perform it);

  • whether the worker is entitled to holiday pay, sick pay, pension contributions and/or other 'employment' related benefits (such as discretionary bonuses and share options);

  • whether the worker is presented as being part and parcel of the organisation;

  • the length of the engagement and the rights of the parties to terminate the contract;

  • other personal factors; and

  • the intention of the parties.

No one factor alone is conclusive in determining status and it is the overall picture presented by all the relevant factors which is important in coming to a decision. Written agreements and contracts are important, however, the analysis will also depend on the substance of the arrangements. 

To facilitate this process, HMRC has developed an online 'Check Employment Status for Tax' tool (see Question 8 for more details)

Is there a time limit for making a SDS?

The legislation doesn't specify a time limit but HMRC guidance states that the SDS should be issued on or before payments are made. We recommend that, for new workers, you issue an SDS as early as possible since, until you make an SDS, you will be liable for tax and NICs (and any apprenticeship levy) due even if you aren't the party in the supply chain paying the PSC. It is possible to make an SDS before 6 April 2021 and we would recommend that you do so for all new engagements that are likely to continue beyond that date.

We hire workers that operate through PSCs through an agency. If we issue a SDS (using reasonable care) does this mean that we won't be responsible for any tax and NICs/apprenticeship levy that might be due?

Generally speaking, provided you issue an SDS (using reasonable care) to both the worker and the agency you contract with, it should be the fee payer (the agency here) and not you that has the obligation to deduct and account for tax and NICs/apprenticeship levy.  However, if HMRC is unable to recover the tax and NICs/apprenticeship levy from the agency then in certain circumstances it can look to the client to pay them by issuing a recovery notice.  HMRC have stated that they will not use these powers in cases of genuine business failure on the part of the fee payer provided they have not knowingly benefitted as a result of winding-up without paying the tax liability.  It is important that your contract with any agency contains appropriate indemnities allowing you to recover any tax and NICs/apprenticeship levy that you might have to pay under the arrangement.  Note that you will also be liable to account for any tax and NICs if the agency with which you contract is outside the UK. 

If we issue an SDS stating that we do not consider the arrangement to be within the New Rules, what happens if HMRC disagree?

If you have taken reasonable care over making your SDS, we would expect the likelihood of such a situation arising to be low.  However, given how complex determining status can be, it is possible that HMRC will disagree with your status determination even where you have taken reasonable care.  Neither the legislation nor HMRC guidance deals with this point but it is our view that tax and NICs/apprenticeship levy would still be due under the New Rules i.e. the making of an SDS with reasonable care does not prevent the New Rules from applying.  If you are not the fee payer and HMRC cannot recover the tax and NICs due from the fee payer, HMRC can issue a 'recovery notice' to demand payment from you as the client.  Although you can appeal the issue of a recovery notice in some circumstances, it isn't possible where the fee payer has already challenged HMRC over whether the tax is due.  Where possible, you should ensure that the contractual arrangements with the fee payer enable you to be part of any such challenge.   

What if the worker disagrees with our decision in the SDS?

If either the worker or the person paying the fee to the PSC makes a representation to you that they disagree with your decision in the SDS you need to consider the representation and decide either to maintain the determination because you believe it to be correct or take the view that your decision in the original SDS was incorrect and issue a new one.  Within 45 days of receiving the representation you must either notify the party that has brought the objection that you consider your original SDS to be correct (stating your reasons) or (if you decide that your initial conclusion was wrong) give the worker and fee payer a new SDS stating the date from which this new conclusion applies. 

Note that the worker or fee payer can challenge the SDS at any time but you are only required to respond to representations made before the final payment is made in respect of the engagement.

HMRC have said that if the worker still disagrees with your determination and believes they have been taxed incorrectly they can use the existing self-assessment and National Insurance processes to challenge it.

You should ensure that you have an appropriate system in place to deal with status disagreements.  We would recommend that a person is clearly designated to receive representations and that the review is carried out by a different person to the one who made the initial status assessment.  It is important that you comply with the requirements of the disagreement process as otherwise liability for tax and NICs/apprenticeship levy could pass to you even if you aren't the fee payer.

This is all very time consuming and difficult. Can't we just assume that all our workers are within the rules?

No, for an SDS to be validly given, it has to be made with "reasonable care". This means that you need to consider each contract on a case by case basis rather than making blanket decisions. Where arrangements are very similar, this process will be easier to streamline but it is very important that you have in place a system for making carefully reasoned assessments.  Failure to take reasonable care will mean liability for tax and NICs will pass to you even if you aren't the fee payer.  HMRC has produced guidance on what it considers to be reasonable care.

Working out whether or not the rules apply is really difficult. Can't we just rely on the outcome shown by the "CEST"?

Determining employment status for tax purposes is notoriously difficult as it depends on the practical operation of the contract not just the underlying written terms. "The Check Employment Status for Tax" tool or "CEST" is the online system offered by HMRC to assist clients in deciding employment status under the off-payroll working rules. Although CEST does not necessarily provide a definitive answer (several recent cases in the Courts have made decisions opposite to those provided by CEST), it provides a helpful starting point for the decision making process. However, this doesn't remove the need for clients to make decisions on a case by case basis.

HMRC updated the CEST on 25 November 2019 and also issued new guidance on the operation of CEST. The changes are intended to both reflect recent case law in this area and take account of the extension of the off-payroll rules to the private sector. The guidance includes the following points:

  • If you already know the worker, CEST will ask more questions.  If the identity of the worker is not known at the time the CEST is used, you will still get a determination that HMRC will stand by but HMRC recommends that once the worker's identity is known, you run CEST again to get a final determination that incorporates the worker's specific factors.

  • HMRC will stand by the result given by the CEST provided the information is accurate and is used in accordance with their guidance.  However, they will not stand by results achieved through contrived arrangements that have been designed to get a particular outcome.

  • HMRC does not keep permanent records of any entries made into CEST and does not store individual results however it is recommended that you download or print a copy of the result and retain a copy. 

The CEST tool and guidance can be accessed via the following links:

CEST tool

CEST guidance

Is an SDS a "one-off" determination or does it need to be refreshed?

Contractual relationships are not simply governed by the written terms of the contract but also how they operate in practice. Sometimes these develop and a contract that was initially outside the scope of the New Rules could fall within them after a period of time.  The SDS is not a once and for all statement but something that should be re-visited on a regular basis. Clients should therefore have in place procedures for periodic reviews (annually, for example) of their engagements with contractors and ensure that any change to the terms of such an engagement triggers a review of the related SDS.

If we decide that a worker's arrangements are within the New Rules but the worker hasn't been operating IR35 historically, is there a risk for the worker that HMRC will look to their personal service company for unpaid tax and NICs?

HMRC have said that they will not carry out targeted campaigns into previous years when individuals start paying employment taxes under the New Rules for the first time. They have said that they will only use information resulting from the New Rules to open a new enquiry into earlier years if there is a reason to suspect fraud or criminal behaviour. Hopefully, this means that HMRC will draw a line under earlier years.  As the client, this is not something that should concern you and certainly should not be a basis for a worker to insist that your decision in the SDS is wrong.

What do we need to do if we pay a PSC directly?

In these circumstances you will be both the client and the fee payer. As the client, you will need to issue a SDS to the worker confirming whether, ignoring the PSC, the worker would be regarded as your employee for tax purposes (or the holder of an office with you) and the reasons for that conclusion.  

If you have concluded that the worker would be regarded as your employee for tax purposes, as the fee payer, you will need to deduct tax and NICs from any fee you pay to the PSC, account for it to HMRC under PAYE and also pay the corresponding employers' NICs (and where relevant apprenticeship levy). The tax and NICs have to be paid through Real Time Information and you can either add the worker to your existing payroll or create a new one. If you pay VAT in respect of the worker's services, this VAT must continue to be paid (but it should be ignored for the purposes of calculating the income tax and NICs due on the fee).

What do we need to do if we pay an agency, and the agency pays the PSC?

In these circumstances you will be the client while the agency will be the fee payer. As the client, you will need to issue an SDS to both the worker and the agency confirming whether, ignoring the PSC, the worker would be regarded as your employee for tax purposes (or the holder of an office with you) and the reasons for that conclusion. You will then pay the agency in the same way as previously.

If you have concluded that the worker would be regarded as your employee for tax purposes, the agency, as the fee payer, will need to deduct tax and NICs from any fee it pays to the PSC, account for it to HMRC under PAYE and also pay the corresponding employers' NICs (and where relevant apprenticeship levy).  If it fails to comply with its obligations then you need to be aware that HMRC can seek recovery of the agency's PAYE debts from you.

Do we need to auto-enrol the workers for pension purposes or deduct student loan repayments?

Although workers within the New Rules are treated as your employee for tax purposes this will not, in itself, cause them to be your employee or worker for pensions auto-enrolment or any other purpose.  You are also not responsible for deducting student loan repayments for such workers (who have to account for these in their own tax returns).

What do you do now?

You say that the law hasn't been finalised – does that mean I don't need to do anything yet?

Even though the law hasn't been enacted yet, we don't expect it to change fundamentally from the draft version that has been published. There are therefore steps that you can and should take before 6 April 2021 when the New Rules come into force.

  • Carry out an audit of your existing workers - is there a personal service company (PSC) involved?

    • Establish which workers are engaged through PSCs where you contract directly with the PSC;

    • Establish which workers are engaged through a supply chain where you contract with an agency and the agency contracts with the workers. Do the workers provide their services to the agency via a PSC?

  • Those workers operating through PSCs - would the worker be regarded as an employee or office holder?

    • You could then apply HMRC's CEST using the answers to your internal checklist and compare the outcomes;

    • Consider other factors that may be relevant;

    • In light of the above, decide whether or not the worker would be regarded as your employee or office holder;

    • Record your decision and keep a note of the reasons for it (i.e. the factors you took into account and the reasons why this led you to the decision you made).

  • Dealing with the worker/agency

    • Ask whether the worker already operates the existing off-payroll working rules for private companies (i.e. IR35);

    • If they don't and you decide that the New Rules will apply:

      (i) Warn the worker and (if relevant) the agency that from 6 April 2021 deductions of tax and NICs will be made from payments to the PSC;

      (ii) Negotiate changes to the terms of the contract with the PSC to ensure that you can deduct tax and employee NICs and make an adjustment to the fee to take account of employer NICs;

      (iii) Deal in advance with any disputes over status/adjustments.
  • Put in place internal processes

    • Establish who will be responsible for status determinations within your organisation and consider establishing a policy for engaging contractors (to ensure they are engaged on terms where the New Rules do not apply).

    • Set up an internal process for:

      (i) Determining worker status;

      (ii) Recording decision/reasons;

      (iii) Preparing SDS and the timetable for issuing these to existing and new workers and where relevant agencies;

      (iv) Receiving disagreements from workers/fee payers and dealing with these within the set time limits;

      (v) Reviewing the status of the worker on a regular basis (annually/each time a contract changes) ensuring that line managers are involved with this.

Do you have a standard "status determination statement (SDS)" that we can use?

Yes we do.  We suggest that you consider preparing a checklist of the factors you will take into account when deciding status and which you will use to prepare an SDS.

Should we send status determination statements to our workers now?

From a practical perspective it will be necessary to send an SDS to existing workers before 6 April 2021 to ensure that you have complied with your obligations by the time the legislation comes into force. For workers that you currently engage and will continue to do so after 6 April 2021, now is the time to have a conversation with them about how you believe you are likely to classify them. Similarly, when you engage any new workers that use a personal service company, you need to have the same conversation with them to ensure that they understand what the position is. You might want to consider giving an SDS to new hires when you engage them and to existing workers in early 2021. If there is any change before 6 April 2021 you can always send a revised SDS.

Points to watch out for

I've heard that even if a client complies with all its obligations under the new legislation it can still be liable for unpaid tax and NICs further down the supply chain – is this right?

Yes, if HMRC has no reasonable prospect of recovery unpaid tax and NICs from the fee payer or the agency with which you contract (if different) it can seek payment from you (see the answer to Question 4).  It is therefore extremely important that you know who the parties in the supply chain are and carry out regular due diligence to check that they are in a position to pay their tax and NICs liabilities. 

We have workers that currently apply IR35 to payments received by their personal service companies – they are complying with the law so does this mean we don't need to do anything?

Unfortunately it doesn't – see the answer (and why) in our companion article. Therefore you need to have a conversation with any workers you engage that are operating IR35 as it is likely that you will need to consider whether it is possible to re-price the arrangement to take account of the fact that you as the client will now be responsible for paying employer NICs rather than the worker's personal service company. HMRC do not currently permit deductions of employers NICs from the payment to the PSC.

We have some workers that operate through PSCs but all the work they do for us is abroad. They tell us they are non-UK resident and that their PSC is based overseas. Surely we don't need to issue an SDS as the rules won't apply to them?

The New Rules do not apply to non-UK tax resident workers who perform all their services overseas. However, the New Rules are not clear on how organisations should get themselves comfortable that a worker is, in fact, non-UK tax resident. We have asked HMRC to issue guidance for companies in this position. At the moment, we believe the best practical approach is to carry out a status determination in any event. If you conclude that the worker would not be regarded as your employee for tax purposes, then you do not need to take any further action. If however you conclude that the worker would be regarded as your employee for tax purposes (if they were UK resident) then you will need to ask the worker to provide proof of their tax residency status (in the same way that you might for a non-resident employee). 

This is all a bit of a headache – wouldn't it be simpler just to engage workers as employees rather than bother with all this?

Some companies are moving workers who will be within the New Rules to employment contracts. However, the changes to the off-payroll working rules should not be the only motivation for such a decision. The rules only treat an individual as an employee for tax purposes - they will not, by themselves, make the worker an employee under employment law. There are a number of reasons why a company might prefer not to engage an individual as an employee and the pros and cons need to be weighed against each other carefully. If individuals are engaged as workers rather than employees this generally offers more flexibility in managing staffing levels - something that will be important to a business where these needs fluctuate. Also, employees have a wider range of rights against their employer (such as those relating to unfair dismissal and redundancy) although it is worth bearing in mind that non-employees can also have protections by virtue of their status as "workers" for employment law purposes. In short, the new rules should not be the only factor in a decision to move workers to direct employment.

We have some Non-Executive Directors that currently work through PSCs – are they also covered by the new rules?

Yes, they are – the New Rules apply if either (i) ignoring the existence of the PSC, the individual would be regarded as an employee or office holder of the client or (ii) the services for which the PSC is being paid relate to the office of a non-executive director (NED).  It might be that the NED currently receives a fee (from which tax and NICs is deducted/ accounted for) in respect of their role as a NED and their PSC receives a payment for additional consultancy services they provide. If those services are either provided in a way that would treat the NED as an employee or they relate to their duties as a NED then tax and NICs will have to be accounted for under the New Rules (when historically, it would have been the responsibility of the NED's PSC to do this).

If you have already taken action in anticipation of the changes

We've put in place procedures for issuing SDS, established a disagreement process and set up new payroll systems. Do we just put these on hold until April 2021?

To a certain extent, yes.  This exercise won't be wasted as we have every reason to believe that the changes will come into effect on 6 April 2021 in much the same form as the Government has already announced.  There might be some minor procedural changes (perhaps to the disagreement process and the tax recovery provisions) but we won't know what these are until the relevant legislation is published at a future date.  In any event, we do not expect any modifications to be significant.

Clients are now largely in a similar position to a year ago – if you take on workers before 6 April 2021 and you think the contract will extend beyond that date, you should consider whether the arrangements will be within the New Rules and draft the contract accordingly (i.e. providing for appropriate indemnities, including the ability to deduct income tax and NICs, enabling the fee to be lowered).  This could be a good opportunity to test your status determination processes so that they are in the best shape possible by the time you are required to use them.  It will be a good idea to carry out a status determination for all new engagements that will extend beyond 6 April 2021 as this will flush out any potential disputes about the application of the New Rules. 

As we get closer to 6 April 2021, you should consider putting in place a timetable for refreshing all status determinations to ensure that they are correct when the New Rules come into force.

We have already issued Status Determination Statements (SDS) to our workers operating through personal service companies in anticipation of the New Rules coming in on 6 April this year. What should we do now?

The answer to this depends on whether or not you considered the worker to be a deemed employee for tax purposes.

  • If the SDS states that they would be regarded as self-employed for tax purposes

Here, the position is straightforward – you can make payments to the PSC gross which is what you would have done had the New Rules come in.  For the 2020/21 tax year you have the additional comfort of knowing it will be the worker's intermediary that is responsible for the tax and National Insurance contributions (NICs) due if HMRC disagree with your analysis.

  • If the SDS states that they would be regarded as a deemed employee for tax purposes

This is a more complicated situation.  It is important to remember that the New Rules (when they come in) essentially only change the way tax and NICs arising under the existing Off-Payroll rules is collected.  They do not change the test used to work out whether a worker should be deemed to be an employee for Off-Payroll tax purposes.  Under the existing rules, the PSC has the responsibility of applying this test.  If the PSC concludes that the individual should be considered a deemed employee for Off-Payroll purposes, the PSC will have to account for tax and NICs under PAYE.

If the existing Off-Payroll rules apply with the result that the PSC has to account for tax and NICs, as the client, we don't have anything to worry about, do we?

It is true that the liability to account for PAYE income tax and NICs under the existing Off-Payroll rules rests with the PSC and is not transferred to the client company (or fee payer).  However, one of the reasons the Government devised the New Rules is because it believed many PSCs were failing to pay the tax and NICs that it considered were due.  As a client, you need to be aware that you could face criminal liabilities if you fail to take reasonable steps to prevent tax evasion in your worker supply chain.  We strongly recommend that you write to those workers and PSCs within the scope of the Off-Payroll rules reminding them of their obligations.  We realise that this could be a sensitive issue but you could express it in terms that, due to the delay in introducing the New Rules, you will make payments to them without deducting tax and NICs in the expectation that they or their PSC will carry out their own analysis under the Off-Payroll regime and account for tax and NICs as appropriate.

We have a number of workers where we agreed to pay them an increased fee to take account of the tax and NICs that we would be deducting from payments made to them under the New Rules – can we unwind these agreements now?

This will depend on the relevant contract and you would need to take advice on its particular terms.  As a general point, if the increased fee was conditional on the New Rules coming into effect then it should be possible to carry on paying the original fee.  However, if the contract provided for an increased fee automatically from 6 April 2020, it is likely that you will need the agreement of the PSC to change it.  If you are able to revert to the original fee, then if the fee was increased because you considered the arrangement to be within the Off-Payroll rules it is important that you remind the PSC to do its own analysis and account for tax and NICs as appropriate (see the answer to Question 2 above).  You should also note that, under the existing rules, employers' NICs are payable by the PSC rather than the client and you need to check whether the contract states who bears the cost of this.

We reduced the fees payable to our contractors to take account of the fact that we would have to pay the additional costs in relation to their deemed employment. As we no longer have to meet any additional costs, can we change the terms of the agreement to revert back to the original higher fee?

This is a commercial decision that you will need to agree between you and the relevant PSC.  If you think the arrangement will continue beyond 6 April 2021, you will need to bear in mind that you as the client will be liable for any costs (such as employers' NICs and apprenticeship levy) from that date.  You therefore need to ensure that the contract provides for the fee to be renegotiated to take account of any increase costs you incur.

We have already moved several our workers to employment contracts – can we reverse this?

As you will know, being treated as a deemed employee for tax purposes and being an actual employee for employment law purposes are two quite different things.  If the individuals concerned are prepared to move back to working as contractors through their PSCs, it is important that you remind them of their obligations under the existing rules.  It will be hard (although not impossible) for them to argue that the Off-Payroll rules do not apply to their engagement when they were previously doing the same job on the same terms as an actual employee.  Also, it is worth bearing in mind that the Government is adamant that this is a delay and the New Rules will definitely come in from 6 April 2021.

If you were preparing to engage workers as employees but hadn't done so, similar issues arise.  Depending on how far down the process you had gone, you may need to take advice on the implications of withdrawing offers of employment.

When the New Rules were about to come in, the Government said that it would take a 'light touch' approach to penalties for errors in the first year of operation and would not use information resulting from the changes to open new investigations into PSCs for tax years prior to 6 April 2020. Will this approach now be moved forward a year?

At the moment we don't know – the Government could take the view that businesses have had an additional year to prepare and therefore won't take such a lenient view on penalties in the 2021/2022 tax year.  We also can't be certain that its pledge to not look into earlier years will apply to the 2020/21 tax year.

Notes

1  This guide sets out the New Rules by reference to the draft legislation and guidance available at the time of writing. We do not expect these to change fundamentally but it is possible that the final rules will contain some modifications.

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