Green light for IR35

• United Kingdom

• Employment law

27-02-2020

Significant changes to off-payroll (IR35) working have been subject to an HMRC Review, following concerns at their approaching implementation (for further information on the off-payroll changes, read our briefing).

The Review has confirmed that the changes will take effect from 6 April. Guidance and training is being expanded and a soft approach to enforcement during the first year has also been announced, amongst other modifications.

The Review

While acknowledging the opposition that remains to April’s off-payroll changes, the Government believes it is right to address non-compliance with the existing rules. In summary, the Review:

• confirms that the reform will go ahead on 6 April 2020
• highlights materials that have been published to assist with communicating the off-payroll changes and promises further products to support their introduction and understanding. It will also raise awareness of the risks of using avoidance schemes. These developments follow recently updated technical guidance on implementing the off-payroll rules, including HMRC’s expectation of what constitutes “reasonable care” when the client makes status determinations
• states that penalties will not be payable for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance
• reiterates that:
  • HMRC will not use information resulting from changes to open new investigations into personal service companies for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour
  • the changes will only apply to services carried out from 6 April 2020 onwards
• confirms that the Employment Status Manual guidance has been further updated in line with the Review.

In addition, the Review states that amendments to legislation will:

• place a legal obligation on clients to respond to a request for information about their size from the agency or worker (i.e. whether or not they are a small business and, therefore, are exempt from the changes)
• address concerns raised over the rules as they apply to off-shore companies. The Government will amend the legislation to exclude wholly overseas organisation with no UK presence from having to consider the off-payroll rules (instead, the contractor’s personal service company must determine status).

What next?

Before 6 April, legislation must be enacted to bring the changes into force, including the above amendments. This is expected by means of, firstly, the Finance Bill 2020 which is expected to be published on 11 March (Budget Day) and, secondly, in secondary legislation (recently published here) which enables the recovery of NICs and amends the PAYE regulations to, amongst other things, allow for the recovery of unpaid taxes from other parties in the supply chain.

In the run-up to 6 April, employers need to, as a minimum: audit their use and the deemed employment status of contractor personal service companies; establish the integrity and credibility of those within the labour supply chain and whether they are compliant with the off-payroll changes; get ready to give reasons for status determinations including training those involved and ensuring that “reasonable care” is being taken; amend or introduce disputes resolution procedures; review and amend engagement, payslip, payroll processes; and review and amend labour supply contractual liabilities and indemnities to ensure compliance. Click for information about support Eversheds Sutherland can offer regarding IR35. Look out for our forthcoming webcast recording on how employers and the market are responding, including new engagement models, practical tips and avoiding new pitfalls.