Published draft legislation for IR35 – what it means for you
The long-awaited draft legislation for IR35 reform in the private sector was published on 11th July, as HMRC outlined the specific plans for the April 2020 changes.
The changes will go ahead from April 2020 with no fundamental alteration to what had been proposed, broadly extending the public sector rules to the private sector.
As announced at Budget 2018, outside the public sector, this change will only apply to medium and large-sized organisations. The draft legislation published on 11 July makes clear when non-public sector organisation including unincorporated organisations, will be considered to be small and therefore not within the scope of the reform. There are messy & lengthy rules around the exclusion for small companies/unincorporated bodies.
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 will introduce a statutory, client-led status disagreement process to allow individuals and fee-payers to challenge the organisation's determinations. There will be a requirement for the “client” to pass both the status determination and reasons to the party below them in the chain, and to the worker (but no requirement to pass to the “fee payer” per se).
The legislation sets out how PAYE/NIC liabilities will transfer up the supply chain, in the event of non-payment further down the chain, and “...HMRC will make clear in guidance the circumstances in which it will not seek unpaid liabilities from parties further up the labour supply chain.” A determination is deemed not to be done if there is a failure to take reasonable care, so this would result in the client becoming liable.
Disagreements by contractors – there is minimal detail in legislation on the process (the client must “give reasons” for deciding that the conclusion is correct) – failure to respond to a challenge by the contractor within 45 days results in client becoming the fee-payer, meaning the IR35 liability will transfer to them, assuming they don’t carry it already.
We understand that guidance on the reformed rules will be available from later this summer and HMRC will be rolling out support and guidance for affected organisations. This will include education events such as webinars and workshops and one-to-one engagement with the largest employers. There is nothing in the draft legislation that states what could happen if the contractor still disagrees with the status decision after the initial appeal. Although, HMRC does not want to be involved and isn’t interested in setting up an independent body to oversee the appeals process.
HMRC are also making enhancements to the Check Employment Status for Tax (CEST) tool, which are expected to be delivered before the reform is introduced.
In due course, HMRC is expected to publish supporting guidance to clarify the steps they expect medium and large engagers and recruitment agencies at the top of the supply chain to take, in order to demonstrate that they have taken ‘reasonable care’ when setting IR35 status. One of our key advisors has regularly made the point that a clear definition of ‘reasonable care’ could be vital in stopping blanket determinations.
Looking ahead at this stage a U-turn or further delay seems very unlikely.
HMRC are seeking views on the draft legislation by 5 September so working party groups, professional bodies, business and individual Personnel Service Companies have until then to provide additional comments.
In Summary in the main the rules will go ahead from April 2020 with no fundamental alteration for what was proposed, however there now appears to be lengthy rules around the exclusion for small companies/unincorporated bodies.
Become informed, increase your own awareness with the forthcoming changes, take a proactive approach to the changes.
Want to know more about the changes?
Contact our Managing Director Louise Wood who will be only too happy to discuss your concerns.
firstname.lastname@example.org +44 (0) 01224 261920
Bulletin 3 issued 17 July 2019Previous Article Next Article