Latest IR35 update
Today we have seen the publication of a report by HMRC on the recent review into upcoming changes to the Off-Payroll working rules. The report details some changes that have been made in response to the review. The most significant changes detailed are:
- Customers will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance.
- HMRC is confirming their previous commitment that information resulting from changes to the rules will not be used to open new investigations into Personal Service Companies for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour.
- In response to feedback from the roundtables that an immediate change would be beneficial, the Government has already announced that the rules will only apply to services carried out from 6 April 2020 onwards.
- The Government will place a legal obligation on clients to respond to a request for information about their size from the agency or worker, and update the legislation to address concerns raised over the rules as they apply to off-shore companies.
- HMRC has already published detailed guidance on the reform and clarified the position on a range of concerns raised, for example the client-led status disagreement process, including making explicit the time limits within which a disagreement can be raised. The Employment Status Manual guidance has been further updated in line with other outcomes from this review.
- HMRC has already published a factsheet to support contractors in preparing for the changes, and is continuing to step up their communications in the run up to implementation. HMRC is launching further products to support contractors in understanding the changes, including a self-help guide on how to spot tax avoidance schemes.
Confirmation of a light-touch approach is a positive move from HMRC – from our experience lots of businesses are genuinely doing everything they can to be ready for the changes, and it’s right that they shouldn’t be held responsible for genuine mistakes that are made in the assessment process. After all, this is a very complicated piece of legislation for clients to understand, and the delays to the Budget, and a continued lack of detailed information has made this a challenging change for businesses to prepare for.
IR35 has been – for some of the clients we are working with – an opportunity to take a broader view of their talent community, and it’s really highlighted to receptive businesses that the options for new hires are not just PSC or perm – there are lots of options on how to engage flexibly. IR35 change projects – if implemented correctly – can give businesses the opportunity to really look at and improve the way that they use contingent resources.
We agree with the comments in the report about the differing levels of readiness between large and medium-sized companies, but this is perhaps because a lot of larger businesses have made commercial decisions not to engage with PSC contractors, whereas smaller businesses – with smaller contractor populations – are more willing/able to make individual role-by-role assessments. The report suggests that CEST has been used “over 230,000 times” since it was updated towards the end of 2019, which supports our feeling that businesses are attempting to ensure compliance post-April.
However, there is definitely a note of caution in the published response for any businesses who haven’t made the necessary process changes or haven’t yet implemented a compliant way of assessing and engaging flexible workers – this definitely shouldn’t be mistaken for a reason not to prepare adequately – HMRC has been clear in their report that deliberate non-compliance will still be targeted under the ‘light touch’ approach.
For recruiters, the move to ensure that there is a legal obligation for businesses to confirm whether the rules apply to them (concerning the small business exemption) is again a positive step forwards. Many agencies have been concerned about how they will be able to determine accurately a client’s size, and therefore whether the new regime is applicable. An obligation for businesses to declare this information will definitely make life easier for recruiters.
Another important message in the details published today is that HMRC has reconfirmed that they will not be looking at contractors’ tax statuses prior to April 2020 unless they suspect fraud or criminal behaviour. Hopefully this should provide some reassurance to those affected - this has been a key concern for contractors and has affected many decisions as to whether to accept assignments where the status is ‘inside’ post 6th April.
If you would like further information on any of the above, please contact our Head of Compliance Victoria Roythorne – firstname.lastname@example.org.