Update: on 17 March 2020, the Chief Secretary to the Treasury announced that the introduction of the IR35 reforms will be delayed until 2021, as part of emergency measures to address the effects of the spread of COVID-19
The Government has recently completed another review of the changes to the off-payroll working rules, which extend the existing rules that apply to the public sector to medium and large engagers in the private sector. The reforms will go ahead on 6 April 2020 as planned, although the Government is making minor changes to the way in which they will be implemented.
An extension of existing rules
For private sector contractors who provide their services through an intermediary, it is the intermediary that is currently responsible for operating the off-payroll working rules. In April 2017, public sector entities became responsible for determining whether the IR35 rules applied, with the engager or agency in the labour supply chain responsible for deducting and accounting for any applicable income tax and National Insurance contributions (NICs). The Autumn 2018 budget announced that, as widely anticipated, the public sector regime would be extended to the private sector (see our previous alert). The changes had been modified and debated extensively even before this latest review, but the report confirms that they will come into force on 6 April 2020.
From 6 April 2020, the private sector business must determine whether the rules apply (and issue a “status determination statement”, which is passed along the supply chain). As with the current public sector rules, the business or an agency in the supply chain will need to deduct income tax and NICs based on the business’s determination. There are various risks for businesses to consider, due to the circumstances in which they may be liable for the income tax and NICs even where an agency is principally responsible, and despite being several steps removed from the worker.
Concessions in initial implementation but no fundamental changes
The conclusions from the review, which were published on 27 February 2020, focused on the implementation rather than the substance of the reforms:
- The report confirms an earlier HMRC announcement that the changes will apply to services provided on or after 6 April 2020 (rather than to payments made on or after 6 April 2020, as originally proposed).
- Businesses will be required to confirm, on request from an agency or worker, whether they are “small” for the purposes of the rules, which should help intermediaries to determine whether the new IR35 rules are relevant.
- The legislation will be amended to exclude non-UK organisations with no UK presence from having to consider the new rules.
- HMRC has confirmed that it will not impose penalties in the first year following the changes “unless there is evidence of deliberate non-compliance.” HMRC have indicated that they will not use information received as a result of the 6 April 2020 changes to open new compliance checks into the use of personal service companies in prior tax years, unless they suspect fraud or criminal behaviour.
Any further substantive changes seem unlikely, and businesses using contract workers should assess their position in advance of 6 April 2020. If you have any questions about how the changes may affect your business, please contact tax partner Oliver Walker.
The report is available online.