HMRC updates off-payroll working rules

On 17 September 2020, HMRC published updates to its Employment Status Manual dealing with the extended off-payroll working rules for the private sector.

The extended rules apply with effect from 6 April 2021. Small entities are excluded from their scope (although IR35 will still apply to those entities).  

Of particular note:

• Guidance setting out how to determine whether a business is a small entity.
• Additional detail and examples of businesses' responsibility in relation to the issue and challenge of status determination statements (SDS), for example the responsibility of passing the SDS along the chain where there are offshore agencies, and the procedure where a challenge to an SDS leads to a different conclusion.
• Confirmation of HMRC's view that where a non-UK client has a UK connection through a permanent establishment (PE), the client is responsible for operating the rules, but HMRC will pursue the debt through the UK PE if tax is unpaid.
• Clarification as to when HMRC will use its powers to recover unpaid tax from other persons in the labour chain and in cases of insolvency, and further detail on how the recovery and appeals processes will operate. New examples demonstrate what HMRC considers to be cases of genuine business failure (in which case it would not seek to recover the unpaid tax from other persons in the chain).

The guidance is helpful given concern and confusion as to how the extension of the rules would apply in practice.