HMRC Clarifies The IR35 Rules Effective From April 2020 For Off-Payroll Workers

HMRC has established its approach for the enforcement and operation of the new IR35 rules and regulations that will come into force for all off-payroll workers working in the private sector April 6th, 2020. Further a consultation has been launched  to determine further steps it can take to ensure smooth implementation of the reforms and address any concerns from businesses and affected individuals on how they will be implemented. According to HMRC, these rules will only be applied retrospectively where there has been a commission of fraud or other suspected criminal activities and behaviour.

The off-payroll IR35 rules will be extended further from April 2020 across the private sector, which is currently mandatory only in the public sector. This will bring larger companies and organisations under the regulatory framework. As per the changes that already exist and have been enforced in the public sector, the responsibility for determining the employment status of a particular contractor who supplies his/her services through a Personal Services Company or PSC shall shift from the contractor’s PSC to the company hiring them. All these changes will come into force starting April 6th, 2020.  

HMRC, in a briefing note it issued, said that as per the decisions made by them, only the information that comes from these modifications to initiate a new inquiry would be used by them if they suspect criminal behaviour or fraud. In addition to that, ATT or the Association of Taxation Technicians has welcomed this new rule. They say that off-payroll rules are rather complex in their application. Also, several contractors are worried about their engager disagreeing with their conclusion or making a blanket decision of enforcing all its contractors within the IR35 off-payroll rules in order to minimise their own tax risk. This is because HMRC might then make use of this change in the reported status to enquire into the tax affairs of a specific contractor from previous years.

The Co-Chair of the Technical Steering Group of ATT, Jon Stride commented that this is a rather high bar to clear. Moreover, it is a pragmatic approach by HMRC that is more than welcome. Furthermore, it builds on the earlier statements that they do not intend for these reforms to be retrospective. That said, the Employment Solutions Tax Partner working at RSM, Susan Ball, mentioned the need for caution. She mentioned that the statement is a bit ambiguous and does not provide enough clarity on its implications in practice because contractors have naturally not worked with these set of rules previously.

Summary Of The IR35 Reforms Early Next Year

A number of changes will be implemented starting April 2020 that will have an impact on recruiters, contractors and end clients working through different limited companies. Let us check out a few important ones!

The end-client shall now be responsible for deciding if a contract falls inside or outside the IR35 rules.

The IR35 reforms for the private sector all mean that the end client shall now have the onus of deciding if a contract falls inside or outside the IR35 rules. These new rules shall be consistent with the ones that came into force in 2017 for the public sector. In addition to that, these new reforms only apply to medium-sized and large-sized businesses. All small-sized businesses are exempt from these new IR35 rules. This criterion applies to small businesses that meet any two out of the following conditions - have an annual turnover of ￡10.2 million or less, a balance sheet of ￡5.1 million or less and 50 employees or less.

On the contrary, it is noteworthy that when it comes to public sector organisations, there is no exemption for small businesses and the rules will apply to all the end clients who engage PSC workers in this sector.  

IR35 SDS Or Status Determination Statement

It is crucial for the end client to confirm the contract status of IR35 by delivering an SDS or a Status Determination Statement. This SDS must be delivered to the PSC worker in writing. Moreover, in case an agency is involved in its labour supply chain, the agency that is supposed to pay the PSC worker must be provided with a copy of the SDS. All these arrangements are designed in a way that most of the onus for the administration of an SDS lies with the end client and the fee payer in case an agency is involved.

The end-client will lead the process of IR35 status dispute resolution.

The end client will be responsible for the arrangements to handle any disputes about the SDS from the PSC workers. The laws do not mention precisely how these arrangements must work but a limit of 45 days has been set to respond with the review outcome of the dispute to the PSC in writing.

Conclusion

The new IR35 norms are being considered as positive additions more or less, albeit with a few concerns. If you are still confused about a few of the established rules and new legislation to be implemented from April 2020, get in touch with DNS Accountants to assuage all your doubts! Also here is a Good Read on What to Do if HMRC Ask For Proof of Your Employment (IR35) Status?