The government has recently published a draft legislation for the next Finance Bill. The draft includes new off-payroll working rules to ensure that two people working side by side in a similar role for the same employer pay the same employment taxes.

The new rules will apply from April 2020 and will affect individuals supplying their services through an intermediary, such as a personal service company (PSC), and who would be employed if engaged directly. It’s aimed at medium and large-sized organisations, outside the public sector, that engage with individuals through PSCs. New rules will also apply to recruitment agencies and similar supplying staff through PSCs.

What’s new?

Changes will shift responsibility for operating the off-payroll working rules from the individual’s PSC, to the organisation or business that they are supplying their services to. This includes responsibility for deciding whether the rules should apply and deducting the employment taxes and National Insurance contributions.

The new rules are part of an ongoing process to make sure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as other employees. The rules do not apply to the self-employed.

Engagements with small organisations outside the public sector are exempt, minimising administrative burdens for the vast majority of businesses.


A 5% allowance is available to those who apply the off-payroll working rules to reflect the costs of administering them. Because responsibility is shifting from the PSC to the engager, this allowance will be removed for those engagements with medium and large-sized organisations. It will continue to be available for engagements with small organisations.

In April 2017 the government reformed the rules so that public sector organisations who take on contractors are responsible for making sure they and their workers pay the right tax. At Autumn Budget 2017, the government announced plans to consult on how to tackle non-compliance in the private sector. Following a 12-week consultation published in May 2018, the government announced at Autumn Budget 2018 that it would extend the public sector reform to all engagements with medium and large-sized organisations. To give people and businesses time to prepare, this change would not be introduced until April 2020.

This measure is expected to impact 170,000 individuals working through their own company, who would be employed if engaged directly. Those who are complying with the existing rules should feel little impact. The measure is targeted at individuals who are not compliant with the current rules. These individuals will be required to pay tax at the correct levels and will therefore face additional tax liabilities.