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IR35 is coming in less than 12 months - Is your business prepared? Don’t bury your head in the sand!

08/08/19 Peter Livingstone Director of Contracts & Interim

Press Release:

Off-payroll working rules from April 2020 in the Private Sector

Summary of Responses – July 2019

In the draft clauses for the Finance Bill 2019-20, the government has confirmed that changes to the off-payroll working rules for the private sector will go ahead from April 2020.

The rules, based on the changes in the public sector in April 2017, will make all engagers (other than those in the private sector considered ‘small’) responsible for determining whether the IR35 rules apply to the contractors they hire and ensuring the necessary PAYE tax and National Insurance contributions (NICs) are paid. 

In light of HM Revenue & Customs’ (HMRC’s) earlier statements on the estimated levels of tax lost through non-compliance under the existing legislation, it is not surprising that extensive lobbying for these changes to be delayed held little sway. Businesses – both contractors and those engaging them – now have a tight timescale to make sure that they are prepared for the changes.

The summary of responses revealed concerns about the new proposals to address failings with the current legislation.

The summary identifies several flaws with HMRC’s proposals, with experts from the tax, contracting, recruitment and legal sectors warning of the potential damages that legislating these changes for April 2020 would cause to the flexible workforce and UK plc.

Among the recurring issues and recommendations made were:

  • Halt reforms until April 2021
  • Strong opposition to client-led disagreement process
  • Liability model grossly unfair on compliant parties
  • Calls for deemed employees to receive employment rights
  • Small company exemption deemed unsuitable
  • HMRC’s Check Employment Status for Tax (CEST) tool is still not fit-for-purpose
  • Widespread non-compliance with the Off-Payroll rules in the public sector
  • Concerns over the timing of the proposals in relation to Brexit.

The feedback analysed consists of 29 consultation responses from professional bodies including Institute of Chartered Accountants in England and Wales (ICAEW), the Confederation of British Industry (CBI), the Recruitment and Employment Confederation (REC) and the Association of Independent Professionals and the Self Employed (IPSE).

Next steps

HMRC guidance on the new rules is expected during summer 2019, but even before this is available, both contractors and engagers should begin to prepare for the changes. Feedback from the public sector implementation was that the five-month lead period was insufficient in many cases for sufficient procedures to be adopted in time, especially in respect of preparing individual determinations where multiple workers are impacted.

For engaging businesses, this will mean that prior to 6 April 2020 they will need to have:

  • Identify all individuals who may be impacted by the new rules.
  • Determine whether or not a contract will fall within the IR35 rules.
  • Put in place processes to ensure that these decisions are both made and communicated consistently moving forwards.
  • Engage with all stakeholders, including individual contractors, about the tax and procedural changes moving forwards.
  • Review their internal systems, such as payroll, finance and HR processes, to ensure that they can make the correct tax and NICs deduction from payments where required.
  • Consider what processes need to be put in place to deal with the specific time limits for dispute resolution with the workers.
  • Contractors should also take this opportunity to consider whether an engager could reach a different conclusion on their status to their own.

Peter Livingstone, Director of Contracts & Interim at Redline Group comments:

“This summary makes it clear that HMRC has a lot of work to do before it can seriously consider extending the Off-Payroll rules to the private sector,” says Peter. “Many have urged HMRC to take stock, instead of ploughing ahead with its impractical plans. At the very least, a further postponement until April 2021 is needed to enable HMRC to thoroughly re-evaluate the many flaws in its plans.

“What has been ascertained since Redline commenced its campaign to help raise awareness to the impending changes is that many clients are at best aware of IR35 but had very little idea on it’s current standing let alone what is literally heading their way! They now have months to not only educate themselves (Hiring Managers, HR, Legal) but assess many of the existing contractors they may have engaged with at this time. The conversation is equally important with the Contractors currently engaged as many businesses will assume they are informed.   

With 15% of public sector responses from CEST still being concluded as undetermined it’s evidential that even with 2 years of evaluation/evolution the TOOL of choice is still far from satisfactory. I wholly agree that IR35 needs reform, it will be 20 years in existence by next April, we can wait one more year and get it right, surely!”

For more information regarding how we can help your business, please contact Peter Livingstone, Director of Contracts & Interim on 01582 878852 or email PLivingstone@RedlineGroup.com.