We’ve recently seen the draft finance bill which contained, as promised, the reform of off payroll rules in the private sector. The much-discussed changes to IR35 come into effect in April 2020, despite consistent calls for delay throughout the consultation.
The draft bill itself confirmed much of what we expected without any huge surprises, so what was there for contractors to take note of?
As we know, the changes are to replace the reforms already rolled out across the public sector, so in effect, there will only be two scenarios for the application of IR35 rules. For all engagements with a small end client, the PSC will be responsible for the assessment and the collection of tax. For engagements with everyone else, it will be the end hirer that makes the assessment, and the fee payer who collects tax.
One of the first obstacles for contractors will be how they know when an end hirer is “small”. The way the legislation is written, it seems that contractors are expected to wait and see if they get a status determination from the end hirer. Where they don’t, the contractor should assume the end hirer is exempt and make a determination directly. It’s self-evident that this is impractical, exposes contractors to risk and will potentially have them handing over fees for assessments and insurance that are duplicated. We will be ensuring all contractors are made aware at the outset whether the company they are considering working with qualifies as small for these purposes.
The draft legislation included a provision for the end hirer to have to communicate both the status decision and the reasoning behind it to contractors. This gives contractors an opportunity to understand the working arrangements from the client’s perspective. However, like the appeals process, it’s difficult to see how this will work in practice for new roles after April 2020.
The appeals process is possibly the most deceiving element of the legislation. Vaunted as an opportunity for contractors to push back on unfair assessments and ensure fairness and transparency, in practice it’s difficult to see it having any real impact. Contractors will be able to appeal against a decision to the client who made the original decision. If a client fails to respond, there is a risk of them being liable for unpaid tax, but as it seems likely that only contractors ruled inside would consider appealing, this feels like a risk in name only.
The best approach for contractors who want to continue to work on an outside IR35 basis is to prepare to work with clients to clarify working arrangements, and consider insurance provisions which provide cover for the contractor, fee payer and client.
If you want to discuss IR35 in more detail, please call your Evolution representative or contact me directly.
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