IR35 draft legislation issued, what’s the next steps?

12 July 2019

12 July 2019 by Nigel Morris

Finance Bill 2019-20: government publishes draft legislation

The draft Finance Bill was issued on 11th July 2019 and includes the draft clauses for the new legislation to support the roll out of IR35 in the Private Sector from 6 April 2020 and it contained no surprises.

The implementation of IR35 in the Private Sector will therefore ‘mirror’ what already happens in the Public Sector, except for 3 new elements:

1. In the Private Sector only Medium and Large businesses will need to operate the new IR35 rules.  A ‘Small’ business is defined by reference to the Companies Act as having two out of three of:

  • A Turnover of less than £10.2m
  • A Balance Sheet of less than £5.1m
  • Less than 50 employees

The new legislation says that for an unincorporated body they just need to have Turnover that mirrors the requirement in the Companies Act, currently less than £10.2m.

2. All Clients are required to issue a Status Determination Statement (SDS), however, a statement is not a status determination statement if the client fails to take reasonable care in coming to the conclusion mentioned!

3. A new client-led status disagreement process is being introduced, so if the worker does not agree with the client’s decision, the client will have 45 days to review the decision and either:

  • Change it, or
  • Provide the worker with confirmation of their original decision and the client’s reasons for deciding that the conclusion is correct.

What now?

HMRC anticipate that the changes in their current form will impact roughly 170,000 individuals working through their own company, who would be employed if engaged directly, as well as up to 60,000 organisations that use workers employed by a Personal Service Company (PSC) from April 2020, and raise up to £3.1bn in extra tax and NIC from 2020/21 – 2023/24.

However, there are still nine months to prepare for the changes to the off-payroll working rules, which, from April 2020, will mean checking whether contractors need to have income tax and National Insurance contributions deductions taken, shifting the responsibility for conducting such checks from the contractor to the organisation using their services.

The recruitment sector in particular is likely to be significantly affected, with an estimated 20,000 recruiters potentially having to operate payroll for any workers they supply who work through their own company.

Also, the jury is still out on the review of the Check Employment Status Tool (CEST) which has been given a vote of ‘no confidence’ by the profession. It will be an important tool for those involved with IR35, yet no update is expected until much later this year.

It should be noted that engagers will not be able to take a “blanket approach” to deciding whether a worker should be treated as an employee for tax purposes, as they will be required to show the reasoning behind each determination.

Next steps

Check if your business falls into ether the “medium” or “large” categories.

If you are caught, follow the process below:

IR35 process

 

Don't miss our key IR35 advice videos

Also, look out for our series of video blogs providing our Top Tips for IR35, including what you should consider and do to be ready for the changes. 

https://www.macintyrehudson.co.uk/?/spotlight-on/ir35-advice-and-key-tips

Get in contact

If you have any queries, or would like to discuss your requirements for the next step, please contact:

Nigel Morris, Employment Tax Director, nigel.morris@mhllp.co.uk, Tel: 07718 340634