Fiscal Event: Repeal of the Off-Payroll Working rules – initial thoughts

The OPW reforms will be repealed with effect from 6 April 2023 – what happens now?

The OPW reforms will be repealed with effect from 6 April 2023 – what happens now?

One of the key announcements in the recent fiscal event was the repeal of the public and private sector Off-Payroll Working (OPW) rules with effect from 6 April 2023. On and after that date, individual contractors’ Personal Service Companies or other intermediaries (PSCs) – and not their end clients and fee-payers – will be responsible for assessing whether the ‘IR35’ rules apply and accounting for tax and NIC as appropriate. This article shares some initial thoughts on what this development could mean for organisations that engage contingent labour through PSCs.

The announcement gives rise to some immediate practical questions around the implications for OPW compliance, and what steps – if any – organisations should consider to change their policies, systems, and processes for engaging contingent labour. Below are our initial thoughts on what this might mean for OPW compliance until the current rules are repealed, and what organisations might consider as they take stock of their positions.

What could this mean for ongoing HMRC enquiries?

We are aware that HMRC have confirmed to some organisations with open enquiries that these will be progressed to completion, and we fully expect HMRC to follow this approach on all open cases. HMRC have also confirmed that the prospective repeal of the OPW rules will not affect any settled OPW enquiries and, as one would expect, these will still stand.

What about compliance between now and 6 April 2023?

Organisations that engage workers through PSCs must, of course, comply with the OPW rules until they are repealed. In addition to the possibility of future HMRC enquiries for as long as the relevant tax years remain open, OPW compliance may also impact on future due diligence exercises (e.g. on an IPO or other transaction), whilst internal audit teams might still review compliance where any potential OPW liabilities appear material.

In addition, at present there’s no statutory mechanism to offset taxes paid by the PSC and/or worker against any OPW liabilities of the fee-payer. The prospective repeal of the regime may make it less likely that one will be introduced, so it will be important to retain a focus on compliance over the next six months, to ensure the position is robust and minimise any potential exposure to irrecoverable PAYE and NIC liabilities.

What about after the repeal?

How best to respond to the broader implications of the prospective repeal of the OPW rules will differ from organisation to organisation. However, many organisations made substantial investments reworking their procurement, supply chain governance, and compliance processes to discharge their OPW obligations correctly. A key aim now will be to maximise the return on that investment.

This might be done by retaining OPW systems and processes but re-positioning them to manage different areas of labour supply chain risk, e.g. where an organisation is engaging with an individual who maintains they are self-employed but where this needs to be validated given the potential PAYE/NIC exposure to the organisation.

In any event, it is quite possible that the OPW rules could be re-introduced by a future government as they were designed to address HMRC concerns around material PAYE/NIC leakage arising from incorrect employment tax status determination by PSCs/workers, and HMRC’s difficulty in pursuing individual cases due to their limited resources.

We expect to publish further insights on the implications of the repeal of the OPW rules in the coming weeks and months. In the meantime, please contact the authors shown, or your usual KPMG contact, if you’d like to talk through what the expected repeal of the OPW rules might mean for you.