Government changes to IR35 legislation (off-payroll working rules) will take effect from the 6th April 2020. This will affect:
- Contractors working through a Personal Service Company (PSC)
- Recruitment agencies, and
- All end-clients who are large and medium-sized (as defined by the Companies Act 2006).
Draft legislation for the Finance Bill 2019-2020 was published on 11th July 2019. This brings about important changes for workers who are acting through an intermediary in the private sector. The finalised Finance Bill will be confirmed by the Chancellor of the Exchequer, as part of the 2019 budget (due @Oct/Nov) and changes are due to take effect from 6th April 2020.
Who is responsible for determining if a contract is inside or outside the new IR35 rules?
The End-Client will be responsible for determining the status of the IR35 contracts with PSCs. These new rules will be consistent with the changes brought in for the Public sector back in April of 2017.
Small businesses are to be exempt
The new legislation will only apply to end-clients who are deemed to be medium or large enterprises as defined in the Companies Act 2006. Small businesses who don’t meet the following criteria will therefore be exempt from these changes and responsibility for determining IR35 status will remain with the PSC; no change there.
Where the end-client meets at least 2 or more of the following measures, the responsibility for determining the status of the IR35 will now be with the end-client.
- Annual turnover not in excess of £10.2 million
- Balance sheet total is not in excess of £5.1 million
- Not in excess of 50 employees
Note, there is no exemption for small businesses in the public sector and the new legislation will apply to all end-clients who engage with PSCs from the public sector!
How to confirm IR35 status
The end-client will be responsible for confirming the status of the IR35 contract by providing a ‘Status Determination Statement’ (SDS). This must be provided by the end-client in writing, to the PSC worker and a copy to the Agency (if involved) responsible for paying the PSC. This places the responsibility for administering the SDS to the end-client and/or fee payer (agency).
IR35 status dispute resolution process is to be led by the end-client
Once the SDS has been provided to the PSC, any disputes or challenges around the SDS from the PSC is the responsibility of the end-client to establish arrangements to consider the queries. The legislation does not include details around how these arrangements should work but does state that there should be a 45-day time limit to respond, in writing, to the PSC with the outcome of the review. This conclusion must confirm the original SDS is to be upheld or if a revised SDS or conclusion is to be agreed. If this is the case, a new SDS must be provided keeping in-line with the same arrangements as outlined above.
Who is responsible for any employment tax liabilities?
The draft legislation advises, the organisation that carries responsibility for issuing the SDS, or the fee-payer (agency if involved), will be responsible for any employment tax liabilities that arise upon inspection from HMRC.
This draft legislation also allows HMRC to collect any tax liabilities from any other ‘relevant person’. A ‘relevant person’ is described to be – any party involved in the payment to a PSC. Meaning HMRC is able to recover employment tax liabilities from the highest party of the labour supply chain involved in not co-operating with the new laws. HMRC says that this power will ensure that full compliance with the new rules from all parties involved in the supply of labour chain.
No more 5% administration allowance
Within the draft of the new legislation it removes the 5% administration allowance for PSCs, which is made up of 5% of your annual ‘Deemed Income’ and is deducted before tax. Tax is then taken from the remainder of your deemed income. However, if you are classed as a small enterprise (private sector) then as mentioned beforehand, you will be exempt from these changes and will still receive a 5% administration allowance. If IR35 only applies to part of your contract work throughout the year, the 5% allowance will be taken from these contracts only and will not include any contact work income that does not fall under the IR35 legislation.
Act now, to best prepare yourself for the changes that will come about after 6th April 2020!
The sooner you prepare for the new Finance Bill 2020 the more you’ll be ready to face the change. This will be a major piece of legislation, bringing with it some big changes and big decisions for PSC’s, employment agencies and end-clients. Every contract will need to be reviewed to ensure it complies with the new legislation.
For all the help you will need to best prepare for this, head over to our website to make sure you’re ahead of the game come April 6th, 2020.
Author: Hugh Adams