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IR35 extension to private sector: Finance Bill amendment on territorial scope

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There has been much discussion over the past year or so about the UK government’s proposal to make changes to the application of the off-payroll working (or IR35) tax rules to private sector end clients so as to shift certain employment status assessment and, depending on the circumstances, employment tax payment obligations from the worker’s intermediary entity (or personal service company) to the private sector end client. These rules were due to come into effect on 6 April this year but, as a result of the Covid-19 crisis, have now been delayed until 6 April 2021.

One of the consequences of the concerns raised when the proposed rules were published was that HMRC announced in March that the new rules would not apply to private sector clients with 'no UK presence'.

On 19 May 2020, the government tabled 'New Clause 1 and New Schedule 1: Workers’ services provided through intermediaries' for the Public Bill Committee of Finance Bill 2020. This includes proposed amendments to be made to the new private sector off-payroll working rules.

The proposed amendments provide the statutory definition for the 'no UK presence' exemption announced by HMRC in March. If enacted as proposed, the change to the rules will mean that private sector clients will only be subject to the new obligations (rather than leaving all obligations with the worker’s intermediary as is the case now) if the end client is either UK resident or has a UK permanent establishment. This means that non-UK resident clients with no UK permanent establishment that engage UK-based workers through intermediaries to carry out work for them should not be subject to the new rules.

This provides useful clarity to such businesses and will allow multi-national businesses using off-payroll workers to plan more effectively for what is likely to be, in any event, relatively onerous internal compliance and management arrangements to comply with the new rules when they are introduced next year.

Issue: 1491
Categories: In brief , Employment taxes , IR35