IR35 Consultation Document
Small changes, but big problems remain.
The HMRC has just released its latest IR35 document for consultation. The “Off-payroll working rules from 2020” document is soliciting feedback from contractors, agencies and companies prior to its implementation of these public sector tax rules in April 2020.
The document also states that there will be education and support packages for all those involved in making off-payroll decisions and to organisations to help them prepare.
Respondents have until 28 May 2019 to provide feedback - and this will inform the Draft Finance Bill.
- IR35 reforms mean that businesses in the private sector will be responsible for determining an off-payroll worker’s status. Essentially, instead of the employee determining his/her tax status, the responsibility now shifts to the employer. If it is determined that a worker is effectively operating as an employee they will be taxed at source as employees instead of through their personal service companies (PSCs).
- This is to bring the private sector in line with the public sector changes made in 2017.
- The government has said in this latest document, that any changes made by this consultation will also apply to the public sector. The suggested changes are however minimal.
Yet the consultation document has addressed a number of complaints and issues raised by the public sector and the first private sector consultation. However, its current suggestions still contain significant ‘gaps’ and work for both agencies and clients.
Key points in the consultation:
- Small Companies: In the first consultation, stakeholders requested that small companies were exempt. This is now confirmed and the definition of a small company will be taken from the Companies Act 2006. So annual turnover of not more than £10.2 million; a balance sheet total of not more than £5.1 million and employees not more than 50.
- Agencies: Any intermediaries in the contract chain - such as a recruitment agency - will now carry liability. Even though the decision for the workers' IR35 decision will be with the end-client, it will be the agency closest to the end client who will be liable for income tax and NIC due.
“We expect that agencies at the top of the supply chain will assure the compliance of other parties, further down the labour supply chain, if they are ultimately liable for the tax loss to HMRC that arises as a result of non-compliance."
"This means it (first agency) has a number of options open to them, such as indemnifying themselves against non-compliant fee-payers, taking on fee-payer responsibilities themselves, or choosing to only work with reputable and compliant firms.” (HMRC, Off Payroll working rules, p15)
- Assessment Tool: There was also significant criticism regarding the HMRC’s assessment tool known as CEST (Check Employment Status for Tax) - with many demanding this be overhauled. Some in the public sector, controversially, applied blanket rules to many of its workers. The consultation document, however, merely states that the tool will be enhanced and tested with stakeholders. HMRC also comments that it “has not seen evidence to suggest widespread blanket decisions are being made in the public sector.” Recent news headlines say otherwise, however. Our hope is that the new tool reflects the complexities of the private sector and that it makes assessments more robust and ensures that it is applied on a case-by-case basis.
- Employment Rights: The consultation will not, however, deal with employment rights. Currently, if a worker is deemed to be acting as an ‘employee’, their NIC and income tax will be deducted at source, but none of the benefits that on-payroll employees get will be extended to them.
- Informing supply chain of decisions: Issues around the labour supply chain are also to be addressed - with legislation being proposed to ensure that a client’s IR35 decision is passed back up the supply chain - with their reasoning. Most importantly the fee payer should know the reasoning. This is believed to prevent workers from not finding out determinations until year end.
- Disputes: In the case of a dispute about status, the HMRC has determined that the off-payroll worker and fee-payer will have the right to seek reasoning for applying IR35 status. Clients will then need to determine how to resolve disputes themselves. For contractors disputing large bills, there is no real indication of how they will be supported.
What can organisations do to prepare?
The consultation document lists the following points to ensure companies and agencies are ready for reforms.
- "Identify and review their current engagements with intermediaries, including PSCs and agencies that supply labour to them.
- Review current arrangements for the use of contingent labour, particularly within the organisation functions that are more likely to engage off-payroll workers.
- Put in place comprehensive, joined-up processes (assess roles from a procurement, HR, tax and line management perspective) to get consistent decisions about the employment status of the people they engage.
- Review internal systems, such as payroll software, process maps, HR and on-boarding policies to see if they need to make any changes." (HMRC, p25)
We want to ensure that that the government ensures its IR35 testing tools are as thorough and comprehensive as possible to protect workers and clients. We fully support the iterative testing of this tool to make sure it is robust enough to deal with the complexities of workers in the private sector.
We want to ensure there is no barrier to new entrants or the growth of our existing clients. We also want to protect the use of contractor workers as we believe they offer real benefit to companies and provide workers with the flexibility they want and need.
That being said, we are not hopeful that any far-reaching changes to IR35 will go through ahead of 2020, so we are preparing to deal with the impact in its current form. However, we will ensure that we are fully prepared for the new liability, we as agency recruiters will shoulder.
Support to our clients
Kingsley fully supports the use of contractors and will work with clients to help them determine their own IR35 company status and that of their contractors. We will help determine the accurate status for the roles we recruit for.
Whatever final form the legislation takes, we will ensure we support our clients in their use of contingent workers.
We believe that contractors are vital to the growth of companies in the Legal and Property Sectors. In order to support our clients, we are committed to providing quality, flexible candidates who meet their immediate needs and can fill skill shortage gaps.
"You Seek, We Find."