On 11 July 2019, HMRC released its IR35 draft legislation in the run up to the IR35 reforms expected to be implemented in April 2020 and we are now able identify what is staying the same as the original reforms and what is changing.
]Aston Carter have a dedicated project team set up to manage the change programme and dependencies through to the implementation of the reform.
What is IR35?
To increase compliance with the existing off-payroll working rules, medium and large organisations in all sectors of the economy will become responsible for assessing the employment status of individuals who work for them through their own limited company. The reform does not introduce a new tax or apply to the self-employed, who are outside the scope of the existing rules.
What the draft legislation confirms
From April 2020, private sector clients will be responsible for assessing whether contractors are self-employed by applying the IR35 criteria. This shifts the responsibility and risk, which has been that of the contractor, onto the end-client. The change in legislation excludes engagements with small companies, where contractors will continue to determine their own IR35 status.
This means that for medium and large-sized businesses, end-user clients will be responsible for making IR35 determinations (determining whether or not a role falls ‘inside’ or ‘outside’ IR35) for our contractors.
What has changed or been expanded
1. End-clients must pass their determination to the contractor and not just the supplier they have the contract with. Contractors will have the right to challenge determinations with which they do not agree.
2. All parties in the chain must take responsibility for ensuring:
a) determination has been made;
b) that determination is passed down the chain to the fee-payer and the contractor; and
c) the appropriate tax and National Insurance Contributions (NICs) are paid.
Anyone in the chain who does not do as they are required could be liable for any unpaid taxes which have resulted from their inaction.
3. Where a party in the chain disappears or HMRC cannot trace that party, then liability can keep moving back up the chain to the end-client. End-clients will now have much more risk where the relevant taxes are not paid to HMRC and for this reason will likely be much more interested in the compliance of their supply chain.
Since publishing the IR35 draft legislation, HMRC has entered into another consultation which is due to be completed in time for the implementation of the reforms in April 2020.