IR35 and the Private Sector: 3 Actions You Should Take Now
IR35 is legislation designed to assess the tax status of contractors operating via a limited company. The legislation is a series of tests that determine who should be classed as and, most importantly, taxed like a permanent employee of their end client. Basically, if you are a limited company contractor, working very much like a permanent employee of your client as opposed to having more of a business-to-business relationship, then Her Majesty's Revenue and Customs (HMRC) sees it that you should be paying the same National Insurance and tax as an equivalent worker. Contractors who have the same working practices as a permanent employee, but don’t pay the same taxes, are called 'disguised employees' and are the primary target of the reforms.
Last year, sweeping changes were made in the public sector to who assessed this status, moving onus from the contractor’s own assessment, to the “end user” of the contractor services. These changes were always expected to transition into the private sector, and The Chancellor of the Exchequer,Phillip Hammond’s announcement of a 2020 roll out is good news, but it leaves some areas still to be defined, and some ongoing questions still to be answered.
First of all, the news that the reforms won’t take place until 2020 is of course, the news that businesses across the UK will be relieved to hear. One of the biggest concerns raised in both the feedback from the public sector, and the recent private sector consultation was that time to implement was going to be a key factor in IR35 roll out and success. In announcing the reform date back to 2020, referencing these discussions - it looked to be an indication that the HMRC had considered, and was acting on, the feedback from consultations.
It is in the official document released in the days since the announcement in October, chronicling and responding to the private sector consultation, where the results revealed there is still more work to be done ahead of the official roll out – it won’t be until 2019 (likely the summer) that full debriefing is completed and legislation is released.
A further consultation will occur in early 2019, which should resolve some of the outstanding questions from the 1stconsultation. The expectation would be that the next consultation focusses on the following:
- CEST:The government’s online tool to assist with tax determination was remarked in the public sector for giving inconsistent or inconclusive determinations
- Reasonable Care: although the exact parameters around reasonable care probably won’t be made, some clarity or guidelines on what reasonable care looks like will need to be drawn
- Clarification on Intermediaries specifically, who can act as a “fee payer”, the expectation that this will tackle some of thepayment structures that have emerged in the public sector, at the moment there looks to be no official obligation on the fee payer following the determination made by the “end user” (the client). The ramifications of this are currently unknown
Whilst the government already remarks the public sector rollout of IR35 as “working well” before a full 12 months in operation; the next 6 months will be a sterner test against a backdrop of a changing political landscape.
Whether the final instructions next summer are effectively the public sector rules, or they are nuanced in some way – preparation can, and should, start as early as possible. Time was not the only much-maligned factor in the public sector feedback, but it was a major one, and we’d suggest not letting that advantage slip this time around.
As you begin to think through the impact to your business, ask yourself:
- Can you identify contractors in scope?
- If you are using Umbrella companies find out what measures they are taking to ensure they are compliant.
- Think about having a change management programme to have oversight of the issues – many company departments will be affected and should have representation on the programme eg IT; HR; Finance Commercial – they should be challenged to think about how the change might impact them and what outcomes they want and who is best placed to help them achieve this ambition.
In preparation you should take these actions now to be in the best position and attract the best workers when the legislation comes into play on 6thApril 2020:
- Education: The basics of IR35 should be understood by everyone in the contracting community at a fundamental level make sure there is an awareness around the business and that roles and responsibilities are identified. Longer term, thinking through how to educate the business on the various behaviours and practices will be vital, as will engaging with L&D alongside HR to create auditable process flows for the business.
- Planning: Audit existing off-payroll workforce to inform change in your programme, consider revising working practices and contracts and assess off-payroll workers and communicate.
- Review current processes: Establish processes for captured workers (eg communication and payroll), look at IT systems and processes and develop changes.
This legislation is likely to have broad ranging impacts to how businesses are getting work done across the country, planning is essential to ensure resource is available at the right time and at the right price, but perhaps more conclusively than before, that work is monitored for compliance to this new policy.
This content is for general information purposes only and should not be used as a substitute for consultation with professional advisors.