The Chancellor has today unveiled the draft Finance Bill which implements a number of important tax policies; including the much-anticipated rollout of IR35 reform to the private sector.
Despite an ongoing campaign by several contractor organisations to delay implementation of the new rules by twelve months, the deadline is still set for April ’20 for all business caught by the changes to comply. This is a clear indication from HMRC that they believe the private sector is not compliant and they are not willing to accept it any longer.
As introduced into the public sector in April ‘17, the changes will put the responsibility on the end-user of the labour to determine whether somebody trading through a Limited Company should be taxed like an employee, subject to PAYE. It will be the responsibility of whoever pays the persons Limited Company to operate the rules, as determined by the client.
Currently, the new rules are only to apply to medium or large users of limited company suppliers, estimated at up to 60,000 businesses; this has not been defined in the draft legislation. There is, however, going to be an exemption granted to smaller businesses who will not be expected to follow the same rules. More details to follow, likely to be announced in the Autumn Budget.
The new rules are set to affect around 20,000 recruitment agencies who provide Limited Company workers to medium and large business who will be caught by the changes.
Challenging the determinations
In a statement, the Minister to the Treasury, Jesse Norman, said, “The draft legislation also includes provisions to ensure that all parties in the labour supply chain are aware of the organisation’s decision and the reasons for that decision.”
“And [the government] will introduce a statutory, client-led status disagreement process to allow individuals and fee-payers to challenge the organisation’s determinations.”
This is as expected from previous discussions, but disputes are likely to drive cost into the supply chain, as well as uncertainty.
When it comes to making a decision, clients will be required to pass their reasoning on IR35 “to both the party it contracts with and the worker” – within 45 days.
“The government does not agree that there are significant incentives for deeming individuals to be employees,” it claims, despite acknowledging clients can be liable if they incorrectly deem outside, but not inside IR35.
HMRC have always held a dim view of blanket IR35 determinations, especially following the introduction of the new rules to the public sector. In somewhat of a U-turn on this point, the response to the consultation states, “Applying a decision to a group of off-payroll workers with the same role, working practices, and contractual conditions can be appropriate in some circumstances.”
That said, indiscriminate blanket assessments won’t afford businesses the same protection, or be an excuse for applying the rules incorrectly.
“However, HMRC is clear that it is not right to rule all engagements to be within or outside of the rules irrespective of the contractual terms and actual working arrangements.”
Flow of Information
Depending on the parties involved in the supply chain, the flow of information from the individual to the Client, via all of the other contracting intermediaries is no doubt going to pose challenges which involve supply chains working together, and using technology to reduce administration and cost.
We will watch out for developments over the next few months but, as always in this space, there are several risks and opportunities to be assessed.
Read more about IR35 in our blog 'Everything you need to know about IR35'.
This blog was contributed by Alex Baines, Managing Director at Blackbeard Consulting.
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