Off payroll working (IR35) in the private sector


  1. How to manage the delay to off payroll working in the private sector (IR35)
  2. Business strategy
  3. Mixed public and private sector clients
  4. Processes
  5. Training and communications
  6. Contracts
  7. Engagement of workers ― PSCs, umbrellas, employment
  8. Timing

As part of a broad package of measures to protect the economy from the coronavirus (COVID-19) outbreak, the planned introduction of off payroll working in the private sector is postponed for one year from 6 April 2020 to 6 April 2021. It was stressed that this is simply a deferral and not a cancellation of the regime, but this pause will bring welcome relief to many during these uncertain times. See the Off payroll working (IR35) in the private sector ― overview guidance note.

How to manage the delay to off payroll working in the private sector (IR35)

New rules were due to come in on 5 April 2020 in relation to off payroll working in the private sector. Please see the Off payroll working (IR35) in the private sector ― overview and Preparing for off payroll working (IR35) in the private sector guidance notes for the background on this. The new legislation has now been delayed until 6 April 2021, and those guidance notes will be updated as new information on the legislation for 2021 comes out.

This delay of the rules leaves end users, agencies, contractors and other employers with many decisions to make, as preparations for these new rules will have already been made. How to operate for the 2020/21 tax year regarding off payroll workers will need to be decided, as will how to relaunch the preparations for the rules for 6 April 2021.

This guidance addresses what to consider and some of the available options for those end users and agencies that have begun preparations that now need to be stepped back.

Business strategy

The business will have put time and thought into the strategy to be taken in response to these new rules. Examples of areas covered by this strategy may include:

  • assessing which suppliers are within scope of the rules, and then whether they are inside or outside IR35
  • responsibility for assessing whether the business is medium or large-sized (by not meeting the criteria for being a small business – see the Small companies ― who is affected by off payroll working (IR35) in the private sector guidance note) and communications for this and others in the chain, particularly agencies and PSCs
  • how to engage with suppliers
  • how to assess whether suppliers are within the new off payroll rules

The strategy may have included grouping certain types of roles, certain types of supplier (for example by the size of the company to separate PSCs from larger companies) and those supplying personal services versus contracted out services.

Some specific examples of agreed strategy within a business may be:

  • no longer engaging directly with PSCs
  • only engaging with PSCs providing personal services who are found to be outside IR35 using the CEST and engaging other contractors via another model such as via an agency, umbrella company or engaging as employees directly through payroll
  • splitting out work that is a service that is outsourced and not a personal service. These not being within the new rules, a policy may have been put in place to allow these services when supplied by PSCs to only be accepted when the contract is in the form of a statement of work (more on statements of work below)
  • assessing umbrella companies for compliance and allowing contractors to work through approved umbrellas only
  • deciding that certain roles will be employed on payroll and no longer via contracts with PSCs or other forms of off payroll engagement

Given the time and effort spent, it is likely to be useful to make a formal note of all these decisions, formally write out the policies and store them on the intranet or other relevant place for the business. This means that when the time comes for the rules to come into force in 2021, those policies are already in place, and so discussions do not have to restart from the beginning.


Ideally, these policies will also have dealt with any exceptions so that it is clear in advance where an exception may be allowed to the standard policy.

This allows the business to have flexibility while putting aside the potential for time consuming discussions on specific cases, along with a firm policy of who the ultimate decision maker will be.

Particularly in large and complex businesses, this can be a very difficult problem to address, with large numbers of people operating differently in different departments or businesses within a group.

Mixed public and private sector clients

When you are providing workers to a mix of public and private sector clients, it is useful to assess what you have already put in place for the public sector clients and how it is easiest to work with the processes already put in place. It may be more practical to keep some of those policies and processes that now apply across the business, rather than needing to flag the different types of client.


It is likely that a number of new processes have been designed and put in place. The first thing is likely to have been a system to flag / separate PSCs from other suppliers. This continues to be useful for the current period and when the new rules come in; therefore, in the majority of cases, it is likely to be most sensible for the business to keep running these processes as planned.

Processes are also likely to have been designed to make decisions on whether a particular role / worker is within IR35. Many will have chosen to use the CEST for this process because HMRC will stand by the output as long as information input is correct.

Given that the new rules change the responsibility for making a decision on IR35 and operating PAYE, but do not change the rules on who is inside or outside IR35, the business might make the decision to keep any processes put in place to run the CEST rather than stopping it and putting it back in again later. Consider the effect of this extra process on how the business functions and what is going to be the most efficient way to deal with the situation.

As above on strategy, where any processes have been designed but no longer need to be implemented, these should be formally written down with responsibilities made clear so that when the time comes to put them into place for 6 April 2021, the design of these processes is ready to go.

Training and communications

The work undertaken to prepare for this legislation is likely to have included training and communications, both external and internal. These might include:

  • training for staff on new processes and policies
  • communications to affected staff on the change and what it means
  • communications to PSCs / off payroll workers in general about the change and how the business plans to manage it
  • communications to clients where the business is, for example, an agency, to show how it is managing the new requirements

Any materials already designed should be recorded and kept in a known place so that they can be used again when the legislation comes into force. In the meantime, it may be useful to use the same materials and tweak them for the processes and policies to be followed between now and 6 April 2021.

It will likely be useful to record anything not already recorded so that it can be retrieved once the processes start up again ahead of 6 April 2021. Staff and others in the chain will need refreshing, and inevitably some changes in staffing will occur, so it will be new to some people in 2021. These materials are therefore highly valuable.

This applies equally to communications and training materials used both internally and with other members of the supply chain.


It is likely that new contracts will have been prepared for working with PSCs, including clauses relevant to the new rules. Many contractors may in fact already have had their contracts terminated and been issued with new contracts.

Where these have been issued, what is the best approach to take? This will vary from business to business, but options include:

  • revoke the new contract and return to the previous contract for the time being
  • revoke the termination of previous contracts that ended as a result of a broad business decision and reinstate / extend them for the next year
  • keep the new contracts in place for next year and add an addendum to deal with the position between now and then in order to stay prepared for the rules coming in next year

Other contractual issues

Given the unusual circumstances, businesses may wish to take a look at whether their contracts include clauses on ‘force majeure’ if these are not already included as standard; this is a legal point and legal advice should be taken as relevant.

Changes to contracts requested by contractors or clients

It is common for contractors to request an unfettered right of substitution clause in their contracts. This is seen by some as ensuring that the contract is outside IR35.

While no contract can guarantee any IR35 treatment, as the result depends on the reality of the situation, it is a risk to the business to include these in some cases. The business should consider:

  • will you / the end client actually accept a substitute? If not, this clause does not reflect reality and it does not make sense to put it into the contract
  • if you / the end client will accept a substitute, but only within certain parameters, that clause can be added to reflect this fact. Adding a clause allowing for an unfettered right of substitution that would not actually be allowed in reality will not stand up to scrutiny and will not get a contractor the ‘outside IR35’ treatment they are looking for; it will also bring into question your intentions when including it

Statements of work

A statement of work is a type of contract that reflects an outsourced service that is materially different to the ongoing provision of personal services. This is a contract type that contractors may well also ask for.

This time is a good opportunity to filter your contractors into those providing personal services versus those providing a contracted out service. A statement of work will not be appropriate where an individual is simply providing a personal service, but it can be useful in delineating the different types of contract from an IR35 perspective.

A statement of work reflects a contracted out service. These are all indicators of a contracted out service suitable for a statement of work contract:

  • defined deliverable – clearly defined, with a start and end point, no ongoing nature to the work
  • risk and reward sit with the supplier, not the client / end user – if the contractor does not do the work to the expected standard, they will not be paid based on, for example, hours spent, but rather on deliverable, so risk not being paid at all. Equally, if the project is completed faster than expected, they can expect to make a profit and be able to take on more work in that time
  • fixed fee (not hourly rates)

There is HMRC guidance on these points at ESM10010.

Status determination statements and appeals

You may have already sent out some status determination statements (SDS) to contractors indicating whether you have found them to be inside or outside IR35 and therefore within the new rules. These will no longer apply. Good practice might be to officially withdraw them. Alternatively, while they will have no legislative force until 6 April 2021, they may well be useful given that they set out the reasons for finding the role inside or outside IR35, and for negotiating the treatment for the contractor for the 2020/21 tax year.

If there are any appeals against an SDS that are in process, they do not need to be concluded at this stage, and can perhaps be put on hold until closer to 6 April 2021. Again, however, this needs to be considered together with how best to engage the contractor in the intervening period.

Engagement of workers ― PSCs, umbrellas, employment

It is likely that businesses engaging off payroll workers will have made risk assessments and run roles through the CEST in order to assess how to treat workers in a way that is compliant with the rules when they come in. As this has already taken place, it may be tempting to simply continue with the treatment taken prior to 6 April 2020. However, there are a number of different options to be considered from both a practical and risk perspective.

Practical considerations

  • there is no need to make any changes for those found by the CEST to be outside of IR35
  • for those found to be within IR35 by the CEST
  • moving workers to direct employment
  • engaging workers through umbrellas (having undertaken the relevant due diligence to ensure the umbrella is employing the worker and to operate PAYE appropriately)
  • keeping the same treatment as prior to 6 April 2020. However, this may be a risk to the business

Risk considerations

If a review has already been undertaken and a contractor found to be within IR35, there may have been plans to employ that person and put them on payroll. While it may be tempting to keep them on as a contractor until the new rules come in on 6 April 2021, there is now a risk that HMRC might view this as assisting the PSC in tax avoidance if that PSC does not record the work as within IR35 on their tax return. This therefore represents a reputational risk, a tax risk and a potential criminal risk (see below).

Employers therefore need to carefully consider their next steps in the engagement of those working through PSCs and other third parties while the new rules are ‘on pause’. It may be that, from a risk perspective, all contracts found to be within IR35 cannot be engaged in the same way as previously. Alternatively, they may require contractors to agree as part of their contract to record this income as being within IR35 in their tax reporting, although of course there is a risk here as it cannot be checked by the business.

Corporate criminal offence risk

Please see the Corporate criminal offences guidance note for details on this subject.

Although the off payroll legislation has been paused for a year, it is necessary for the business to consider all risks. Having undertaken work to understand the IR35 position of your contractors and found some to be within IR35, care is needed when deciding how to proceed in the 2020/2021 tax year.

A corporate criminal offence only applies where:

  • there is criminal evasion of tax by a taxpayer under existing criminal law
  • there is criminal facilitation of the tax evasion by an associated person of the relevant body, and
  • the relevant body failed to prevent the associated person from committing the criminal facilitation act

This might not seem to apply in most cases; however, it should be considered if planning to continue paying a contract you know to be inside IR35 gross, or if you engage any umbrella companies paying their workers a high level of take-home pay that cannot therefore have had the appropriate amount of PAYE applied.

Reputational risk

Although the risk of a charge of a corporate criminal offence is relatively low, the reputational risk when it comes to off payroll working is high.

If you have assessed a contractor as being within IR35, put processes in place to move them to a different payment position and then go back to treating them as being outside IR35 for a year before treating them again as being within IR35. This may affect your reputation with the general public and HMRC. It is worth considering the impact this could have on your business.

Remember that any CEST output can still be kept and used. The new legislation does not need to be in place for that tool’s output to apply


There is going to be a point in the next 12 months where the project will need to be picked up again well in time to have everything ready for 6 April 2021.

Now is a good time to consider how much time it is likely to take to complete all of the preparations needed based on the work you have already done. This plan can then incorporate plenty of tolerance to allow for any urgent or unexpected business requirements that may come up during the project given there is now time to plan ahead.