The IR35 tax clampdown is the budget’s biggest new revenue-raiser. Already applied to the public sector, the Chancellor has now applied the rules to the private sector too.
‘This move is essential to ensure fairness between individuals working side by side for the same employer.’
This is Chancellor Philip Hammond’s reasoning for extending IR35 to private sector contractors. He justified the change by citing evidence of non-compliance by those working in the private sector. However, the news isn’t all bad. During consultation earlier this year, he received representations and announced that
– implementation will be delayed until April 2020
– the new regulations will only apply to businesses with 250 employees or more.
With these reforms, the responsibility for implementing the off-payroll working rules will shift from the individual to the organisation, agency or other third party who engages the worker.
Well ahead of its introduction, HMRC will be providing ample support and guidance to affected organisations.
Monitoring the impact
The government has confirmed that, since introducing IR35 to the public sector, it has constantly monitored and learned from its implementation.
Information gathered from tax receipts, alongside independent research, suggest that the reform has increased compliance, without negatively affecting public bodies who engage flexible workers.
In response to representations, the government won’t introduce the reforms until April 2019. This will give organisations ample time to prepare – to set up compliance systems and to review existing contracts.
Just 5% of businesses affected
The only businesses who will have to apply these reforms are those with more than 250 employees – over 95% of businesses won’t need to apply the reform.
The government acknowledges the danger that some businesses might use blanket decisions for defining the employment status of groups of workers in similar roles. They are currently exploring the potential for penalties for organisations who don’t take sufficient care in allocating employee status. The government will also outline the process to be followed by people who don’t agree with business’ decision regarding their employment status.
HMRC acknowledges that there are concerns about the operation of Check Employment Status for Tax CEST. It is looking at where it might make improvements. Examples include mutuality of obligation, how to treat multiple contracts and clarifying the language used.
No retrospective measures
In the next few months, HMRC will be publishing a further consultation – namely, on the detailed operation of the extension of the new IR35 rules to the private sector. This consultation will provide a basis for the draft Finance Bill legislation, which the government expects to publish in Summer 2019. The new rules will be given effect from 6 April 2020. The enhancements to CEST will come into play well before this introduction.
The government has confirmed that, just as with the public sector, the IR35 private sector reforms will not be retrospective.
Prepare well ahead
Our Most Money tax experts urge businesses to prepare well ahead of the 2020 implementation.
The changes that larger companies face with the introduction of IR35 are considerable. There’s no guarantee that the new process, along with the application of CEST, won’t suffer from teething troubles.
Given the size of the task ahead, it’s critical that businesses and intermediaries, who engage contractors, are sure that they have the skills and expertise to make accurate IR35 assessments well in advance of April 2020.
Is your company large enough (> 250 staff) to be affected by the new IR35 reforms? Why not give us a call? We’d love the chance to guide you through this potentially complex issue. We’re tax advisors with an intimate knowledge of tax law. Speak to us. After all – we’re here to help.
This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Please, consult an attorney if you’d like to get advice on your interpretation of this article.