IR35 UpdateWe are committed to helping you through the changes that are coming to IR35 rules. If you engage independent contractors or you work as an independent contractor in the legal space, whether through us or not, feel free to contact us with any questions you have and we’ll do our best to answer them.
The off-payroll working rules, known as IR35, were introduced in 2000 to ensure that someone working like an employee, but through a company, pays similar levels of tax to other employees. Changes are coming into force on 6 April 2020 to the entity tax is collected from, not to the question of whether tax is due.
The government has just concluded its promised review into these changes and while there are no substantive differences planned, they have at least provided some useful clarifications. Here are our immediate thoughts on them.
Lifted straight from the review report these include:
“HMRC have already committed to not using information resulting from the changes to the rules to open a new compliance check into Personal Service Companies for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour.”
We say: So in the absence of fraud or criminal behaviour contractors do not need to fear that previous years will be taxed differently.
“To deliver this supportive approach in 2020-21 specifically, HMRC will…take a light touch approach to penalties. Customers will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months unless there is evidence of deliberate non-compliance.”
We say: This should not be taken as an invitation to ignore IR35 but rather the chance to work hard at getting it right without fear of being punished for genuine mistakes.
“The Government has listened and taken action early to give businesses certainty, announcing on 7 February 2020 that the rules will now apply only to payments made for services provided on or after 6 April 2020.”
We say: So if you are a contractor working in a role that is determined to be inside IR35 via a PSC at the moment which will continue after 5 April 2020 you can invoice via your PSC in the normal way up to 5 April for services provided up to that date. The liability to account for any PAYE etc up to that date will remain with your PSC. You can issue the invoice after 5 April provided it is for services up to that date.
“The Government will bring forward legislation in Finance Bill 2020 to place a legal obligation on clients to respond to a request for information about their size from an agency or a worker. HMRC will also update the guidance to support clients to understand their obligation.”
We say: Small businesses are for the time being excluded from the obligations to provide status determination statements. This confirms that contractors will not have to work out for themselves whether clients fall within this exemption – it appears that they can ask the client and rely on that response.
“Within the published guidance, HMRC have clarified the client-led status disagreement process, including by making explicit the time limits within which a disagreement can be raised, and communicating how the process works to contractors.”
We say: we’re waiting to see this clarification. The draft legislation at the moment provides that a client must provide details of how to disagree with their status determination statement and an obligation on them to respond within 45 days if a contractor challenges their SDS but contains no detail about any time limit within which such disagreement has to be notified. It appears this is being clarified.
You can read the full government update here.
Please do not hesitate to contact us to discuss any queries you may have on the IR35 legislation.