HM Treasury Release Their Review of the Off-Payroll Reforms
The government released their report and conclusions following their review into the off-payroll (IR35) reforms in the private sector yesterday. There were no major surprises contained within the review, and the off-payroll reforms will still be implemented on the 6th April 2020 but with some minor changes.
We’ve condensed the key points of the 18 page review below for you, however if you’d like to read the review in its entirety you can do so here.
HMRC will not retrospectively open enquiries
The report has again confirmed that HMRC will not open enquiries into individual PSC’s for previous years if there is a change in IR35 status due to the reforms unless there is a reason to suspect fraud or criminal behaviour.
HMRC have committed to raise awareness of tax avoidance scheme risks
Concerns have been raised by stakeholders that the reforms may push contractors into tax avoidance schemes that promise a higher take home pay than a compliant umbrella solution. These kinds of schemes present a significant risk to not just the contractor but also to the supply chain.
The debt transfer provisions included with the legislation mean that where HMRC are unable to recover the unpaid tax liability from the ‘fee payer’, they will seek to recover it from other parties in the supply chain. However, they have stated that they will only seek to use this power when a tax avoidance scheme has entered the supply chain.
The move from HMRC to educate contractors directly on the risks associated with these schemes is therefore welcome and as such, they have published a self-help guide. However, there is still much work to do in tackling these schemes and educating contractors is one part of this. Until the umbrella industry is regulated contractors will still be at risk of getting caught up in schemes that can appear legitimate.
End-hirers compelled to disclose their size
The reforms will include a small companies exemption, which means the existing IR35 rules continue to apply to small companies. There have been concerns expressed around the difficulties in recruitment agencies and workers finding out whether or not their end-hirer qualifies as a small company. To combat this, the government confirmed that they will introduce legislation in the Finance Bill 2020 that will place a legal obligation on the end hirer to respond to a request for information about their size from a recruitment agency or the worker. This will provide much needed clarity.
Overseas clients excluded
The report has confirmed that wholly overseas organisations with no UK presence will be excluded from the reforms. Following some confusion from the draft legislation this confirmation is welcomed. This means that if a contractor is working for an overseas end-hirer the responsibility for determining the IR35 status of an assignments remains with the contractor.
Client led disagreement process
Introduced alongside the April 2020 reforms will be the client led disagreement process. This will allow the contractor or the deemed employer/ fee payer to make representations to the end hirer where they disagree with the Status Determination Statement (SDS).
Guidance has been updated to clarify that the end hirer is only required to respond to representations made during the course of the engagement and before the final payment is made to the contractor.
Both the report and the updated guidance state that should a contractor still disagree with the SDS after following the client led disagreement process and believe they have been taxed incorrectly as a result of this, the existing Self-Assessment and National Insurance processes can be followed. It is unclear at this point how this will work in practice and what will happen to the employer’s NI contributions made by the fee-payer.
Services provided post 6th April not payments made
The report also repeated the previously announced change that the new rules will apply to services provided from 6th April rather than payments made after 6th April. This change will apply to the private sector only, in the public sector the new rules will continue to apply to payments made post 6th April 2020.
The report also confirmed the updates to the employment status manual that were made earlier this month including reading ‘reasonable care’, transfer of liability, recovery from other persons provisions and outsourced services.
It appears the government has taken on board some of the concerns raised in the review and it is good to see much needed clarity on overseas working and the pledge to legislate for end hirers to provide confirmation of their size. With the reforms pressing ahead businesses need to step up their efforts to ensure they are prepared for 6th April. If you need help with this get in contact with our expert team.
Help from SJD Accountancy
If you have questions around the IR35 reforms and how they may impact you and your business in the new tax year, please speak with your accountant. For more information on IR35 please visit our IR35 resource section.
Update: at the time this article was written, the off-payroll (IR35) reforms were due to be implemented on the 6th April 2020. On the 17th March 2020, the UK government announced that it would be deferring the reforms to the 6th April 2021 to help businesses and individuals during the COVID-19 crisis.