IR35 roll out to the Private Sector delayed until 6 April 2021, so what now?

18 March 2020

18 March 2020 by Nigel Morris

The Chief Treasury Secretary Steve Barclay recently announced the delay by 12 months to the IR35 tax reforms in the Private Sector due to be implemented from 6 April 2020 and confirmed in the 2020 Budget a week ago. 

As part of the Government announcement as part of additional support for businesses and individuals to deal with the economic impacts of Covid-19, it was confirmed that the different rules that exist for inside and outside the public sector will continue to apply until 6 April 2021.

The announcement ended by stating that this is a deferral of the introduction of the reforms, not a cancellation and the Government remains committed to introducing this policy to ensure that people working like employees, but through their own limited company, pay broadly the same tax as individuals who are employed directly.

This will be very good news for potentially affected businesses who have enough to focus on with managing through the impact of Coronavirus in the coming months.  However, it will be a blow to a lot of businesses who have been working very hard to prepare for the changes and have made adjustments to contracts, processes, procedures, policies and infrastructure to be ready for the previously confirmed start date in just 20 days.

We are still here to assist those businesses who still want to be proactive in their readiness for the (delayed) implementation of IR35 in the Private Sector, but we imagine for most it will be a sigh of relief and some welcome breathing space to look at this radical reform later this year after the country has, hopefully, recovered from Coronavirus after the Summer.

Our IR35 support material and collateral library is still available by clicking here

Our focus in HCA for the immediate future can therefore be assistance with PAYE/NIC deferrals along with other strategies to manage payments to employees, deferring income and bonuses, claiming support and innovative remuneration arrangements and HR advice, in these unprecedented times.

There is no suggestion that the implementation of IR35 in the Private Sector will change and 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. A Turnover of less than £10.2m
b. A Balance Sheet of less than £5.1m
c. 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:

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

What now?

HMRC have not changed their view 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 PSC, and raise up to £3.1bn in extra tax and NIC, though this is likely to be pushed out to 2021/22 – 2024/25.

There is more time to prepare for these changes to off-payroll working rules, which now from April 20201 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.

In addition, 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, but the recently released revised version may still be flawed!

Organisations can’t take a “blanket approach” to deciding whether a worker should be treated as an employee for tax purposes, as they need to provide reasons for each determination.

Next steps for IR35 compliance

  1. Check if you are caught under the definition of ‘Small’ or not.
  2. Follow the below process

 

Get in contact

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

Nigel Morris, Employment Tax Director, nigel.morris@mhllp.co.uk, Tel: 07718 340 634

Gordon Thrower, Employment Tax Senior Manager, gordon.thrower@mhllp.co.uk, Tel: 0207 429 4100

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