IR35 Update – March 2020
The off-payroll reforms to IR35 in the private sector have now been delayed by 12 months due to the coronavirus pandemic.
The legislation will now be reintroduced in April 2021. This is a welcome decision in light of the worrying health and economic challenges we now face, but we must stress that it has been made clear that this is only a delay and not a cancellation.
Eighteen months after the public sector IR35 reforms came into effect, it seems as though we have a date, though not quite all the details, of when the private sector will follow. April 2020 is the date that has been set by the Government when contractors within the private sector will see a similar overhaul of IR35 – though HMRC like to call this ‘re-balancing’ in the tax system.
Amongst the contractors, this was possibly the most debated measure of the budget and the governments’ insistence to continue to reform IR35 will undeniably be a concern to many.
IR35 is a tax legislation designed to stop tax avoidance by workers who supply their services via a limited company but are effectively providing their services in the same way as an employee. However, the government wanted to ‘re-balance’ the tax system and in April 2017, introduced measures to clamp down on this within the public sector. Primarily, the change shifted the responsibilities in assessing the status of IR35 to the business, rather than the worker.
While it’s difficult not to be concerned by the upcoming changes, it’s also difficult to see what the final legislation will be – there are certainly some details still to be worked out.
So, what are the proposed IR35 changes and in reality and what does this mean?
From 6 April 2020, medium and large businesses will need to decide whether the rules apply to an engagement with individuals who work through their own company.
As yet, there is no specific definition of how HMRC will define a medium or large business, except to say confirm that 1.5million small businesses will continue with the old rules. Clearly, until we know how HMRC will define a company we will not know the full extent of which businesses might be affected.
HMRC will continue to work with stakeholders to improve further CEST and guidance before the reform comes into effect.
This is good news and indicates they have at least listened to the concerns. It’s clear that the CEST tool has not been effective for the public sector – indeed from the outset, the tool simply didn’t work. So, we welcome the decision by HMRC to revisit the tool.
the reform is not retrospective…nor will it carry out targeted campaigns.
Currently, we should take this with a large pinch of salt but in principle it means that once the legislation kicks in, HMRC will not consider whether the new rule should be retrospectively applied. Furthermore, they have indicated they will not carry out targeted campaigns if the contactor starts paying employment taxes under IR35 even if they remain in the same contract.
Importantly, the footnote to the published document states that:
…a further consultation of the detailed operation of the reform will be published in the coming months and tied into the draft Finance Bill, published summer 2019.
Both HMRC and the government seem to be admitting that after the reform to the public sector, further changes may need to be considered before the legislation is fit for the private sector. What these changes are and how they affect businesses or contractors remain to be seen.
Importantly however, HMRC are requiring further consultation from the main stakeholders and, if they listen, may still affect the outcome and the resulting legislation yet.