The Chancellor of the Exchequer confirmed in his October Budget that changes to IR35 regulations would be extended to the private sector. Despite fears that the reforms would be introduced in 2019 and therefore not giving enough time to prepare, the controversial change will be delayed until April 2020 and only apply to large and medium-sized organisations.
The changes, implemented into the public sector in April 2017, meant public sector end-clients became responsible for determining whether a worker operating through a personal service company or other intermediary is caught by IR35 or is genuinely self-employed. Where a worker is caught by IR35, the rules means the fee payer, often a recruitment agency is responsible for deducting tax and then paying the worker’s tax, NI and employer’s NI.
As we detailed in a previous blog, the public sector’s lack of time to prepare for the reforms led to uncertainty, case defeats for HMRC, questions surrounding the reliability of its IR35 online Check Employment Status for Tax (CEST) tool, and end-clients refusing to engage with PSCs altogether. As a result, news that the rules would be implemented in the private sector has been met with opposition by the industry.
Chief executive of the Freelancer & Contract Services Association (FCSA) Julie Kermode stated: “In an interesting move, the Chancellor decided to level the playing field between public and private sectors, but only for large and medium businesses, thus letting the smallest employers off the hook. This is somewhat foolhardy given that large businesses are precisely the ones that are least well-placed to accommodate the change due to the impact on their IT infrastructure should they need to process deemed payments to their contractors. The reforms dictate complexities in paying off-payroll workers’ invoices that require both accounts payable and payroll software to ‘talk to’ each other – functionality that most large businesses simply do not have.”
Following the budget, HMRC published their summary of responses from the consultation, confirming its next steps: “This consultation will inform the draft Finance Bill legislation, which is expected to be published in Summer 2019. The new rules will be given effect from 6 April 2020. HMRC will continue to work with stakeholders to improve the CEST digital service and the detailed employment status guidance. Enhancements to CEST will be introduced in advance of the new rules coming into force.”
Operations director at the Association of Professional Staffing Companies (APSCo) and co-chair of HMRC’s IR35 Forum Samantha Hurley responded: “There is no doubt that the timeframe is still tight, and we would have hoped to see draft legislation before next summer. However, organisations will at least have a clearer idea from the upcoming consultation on the detail of the changes to enable them to upskill their workforces to be able to make appropriate status determinations and to get their internal processes and IT systems in order, to cope with the new rules.”
Commenting on the timing of implementation CEO of PRISM Crawford Temple said: “2019 was always going to be a big call as this clashed with Brexit so 2020 seemed the most likely option. This time frame afforded the Chancellor other options to reform the tax system which he has failed to recognise. This shows a real lack of understanding of business and a lack of ambition to build a tax framework fit for a post-Brexit world.
“IR35 is now a toxic piece of legislation, supported by the fact that it is now referred to as Off Payroll tax, and to make this fundamentally flawed piece of legislation the foundation for new tax status rules is at best foolhardy. HMRC who are in charge of enforcement seem unable to understand it and continually lose cases so how he thinks business will have a better grasp is beyond reason.”
For more insights and updates on all things IR35, stay tuned to the Mango Pay blog.