Are you ready for changes to IR35?
Posted on 10th March 2020 at 10:06
When HM Treasury published its review of the off-payroll working rules, known as IR35 it said that the rules would be extended to the private sector from 6 April 2020. They have been used in the public sector since 2017.
However, due to the measures put in place due to the spread of coronavirus (COVID-19) this has been delayed until April 2021. The move is intended to help businesses and individuals deal with the economic impact of COVID-19.
When the new rules are implemented, HM Revenues and Customs (HMRC) has said it will carry out further research into the impact of the change after six months. The HMRC review will include how worker status is decided.
A light touch in the first year
The Chancellor has said that HMRC won’t be “at all heavy-handed” during the first year. Penalties for inaccuracies relating to off-payroll working are unlikely to be imposed unless there is evidence of deliberate non-compliance. However, there is some concern that this ‘light touch’ will only apply to possible penalties and that tax payments for many businesses and off-payroll workers are still likely to increase.
Retrospective reviews are not expected
The HMRC says it will only use information from the implementation of the new rules to review the status of off-payroll workers in previous tax years if there is a reason to suspect fraud or criminal behaviour.
One practical problem will be how to confirm who should make the decision about the status of a worker. Large or medium-sized organisations will need to make the status determination, but for smaller engaging businesses the worker will make the decision through their own personal service company.
Businesses will be required by law to respond to requests for information about their size (whether medium or large) from any agency or off-payroll worker.
At the moment, it isn’t clear how IR35 status will be determined by the engaging businesses.
HMRC says that the decision must be made on a case by case basis and the engaging business must take ‘reasonable care’ over the process.
However, we don’t know what will be accepted as reasonable care, although there is now a draft discussion in the HMRC’s Employment Status Manual. To be on the safe side all engaging businesses should keep careful records of how they make their decisions about IR35 status.
The law will be changed so that overseas businesses without a UK base won’t have to take the off-payroll working rules into account.
Letting people know
HMRC has already started to let people know about the changes by writing to 43,000 medium-sized businesses and offering one to one support to the UK’s largest 2000 employers. Workshops and webinars will be available for tax agents, recruitment agencies, charities, public bodies and contractors. There’s also a factsheet for engagers to share with contractors.
If you would like to discuss your position under IR35 and steps you can take to make a smooth transition next month, please get in touch.
Tagged as: tax
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