IR35 – has your exposure to risk been increased?

The original off-payroll working rules for medium and large business in the private sector (IR35) were introduced in 2000.  The rules were in place to ensure that individuals who are working like employees, but who operate via an intermediary, such as a personal service company (PSC), pay broadly the same tax and National Insurance Contributions (NIC) as an employee would.

 

However, the PSC self-assessed whether the rules applied, resulting in what HMRC believed was a high level of non-compliance. Indeed, HMRC estimated that if changes were not made to IR35, non-compliance would have resulted in lost tax and NIC revenues of £1.3bn by 2023/24.

 

New Policy and Consultation Document

 

The government have now published the policy and consultation document on the proposed reforms to the off-payroll working rules for medium and large businesses in the private sector. The reforms will apply from 6 April 2020, just 13 months away.  It is important to stress that sufficient preparation is crucial in order to ensure a successful implementation – and the level of risk associated with an unsuccessful implementation.

 

The reform will be primarily based on the off-payroll working legislation introduced in the public sector from 6 April 2017, but with important proposed changes to that current legislation.  The changes clarify the obligations of the business using the services of the worker and those involved in the supply chain. These changes will apply equally to both private sector businesses and those in the public sector.

 

The new legislation affects those medium and large businesses in the private sector using the services of off-payroll workers operating via intermediaries such as PSCs. Other parties in the supply chain are also impacted, for example recruitment agencies who provide workers who operate through intermediaries such as PSCs.

 

The policy document provides clarity on the proposed operation of the rules. However, disappointingly, no clear details about aligning the employment status tax and rights frameworks have been issued, despite the recent publication of the Good Work Plan.

 

There has been commitment from government that an enhanced Check Employment Status for Tax (CEST) service will be available before April 2020. This service will run alongside an education and support package.

 

What the changes mean

 

Where the end user of a worker’s services is a private sector medium or large business the burden for determining whether IR35 applies will be placed on that end user, rather than the PSC.

 

Where that end user determines that IR35 applies, it is the fee payer who will become responsible for accounting for and paying the related tax and NIC, including the additional cost of employer’s NIC to HMRC.  This fee payer may be the end user themselves or another third party.

 

Note that this does not apply when the end user of a worker’s service is a small business.  In these cases, the responsibility for determining if IR35 applies remains with the PSC. This will be the case even where the worker is supplied via a third party such as an agency.

 

It is clear, and has been acknowledged by the Government that there is a need to provide legislative clarity around requirements to pass on the reasons for, and the status determination down the labour supply chain. It proposes to change the legislation so that the end user of the services must provide both the off-payroll worker and the party they contract with (such as an agency) with details of the status determination.

 

It is also proposed that allparties in the supply chain will be required to pass on details of the determination down the chain in some way.

 

The current IR35 rules have no clarity around the processes to be followed in the case of status disagreements. The current proposal in the new rules is for clients to develop and implement their own processes to resolve disagreements, but these must be based on a set of requirements to be set out in the legislation.

 

For instances where HMRC does not receive the tax that it believes is due, it is proposed that the liability will fall upon the entity in the labour supply chain that has not met its obligations. In addition, if that outstanding liability cannot be recovered by HMRC from that entity, then the liability will transfer back to the first party or agency in the chain.  This could be the end user itself, a real incentive for businesses to undertake appropriate due diligence on their labour supply chains going forward.

 

Although this will create a significant ongoing administrative burden, the increased exposure to risk of non-compliance for both the end user of the services and those in the supply chain will deem it completely necessary.

 

As stated at the start of this article businesses will need to ensure that they have robust procedures in place to meet the new obligations and for them to be ready for the April 2020 implementation.

 

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.  

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.

The Tax Recruitment Company and its directors and staff do not provide tax, legal, or accounting advice. This communication/material has been prepared for general information purposes and guidance only. This communication/ material does not constitute tax, legal, accounting or other professional advice, and should not be relied on or treated as a substitute for any such specific advice relevant to particular circumstances.  You should consult your own tax, legal and accounting or other professional advisors for any specific advice following receipt of this communication/material.

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