Prepare your clients for the private sector off-payroll working reforms

10th Dec 2019
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Despite calls from some professional bodies, such as the ICAEW, to delay the launch of the off-payroll working (aka IR35) reforms to the private sector, the reforms are currently still on track to come into effect from April 2020.

With just a few months to go before the reforms are introduced, this article considers ways your firm can help prepare clients for the upcoming changes.

What’s changing?

In essence, the private sector reforms extend the off payroll working reforms that were introduced to the public sector back in 2017.

From April 2020, the responsibility for determining the employment status of workers that contract through an intermediary will lie with medium and large private sector clients.

The reforms also introduce the Status Determination Statement (SDS) which should be prepared by the client and given to the worker, as well as other parties in the labour supply chain if relevant. A client-led appeal process is available in case of disagreement.

Where a worker is deemed to be a disguised employee, the fee-payer (typically an agency or the client) should deduct income tax and national insurance contributions on payments.

Organisations considered small will be exempt from the above reforms (i.e. for those clients, the responsibility for determining IR35 status will remain with the worker, as is presently the case).

How can I prepare my clients for the reforms?

With just a few months to go before April 2020, there are a few actions you can take now to get your clients ready.

1. Identify which clients are impacted

This may sound obvious, but the fact is that not all clients will be within the remit of the reforms (for example, small-sized clients).

If you have clients that are contractors, make sure that you know how their business is structured. If they operate through a Personal Service Company (PSC) or similar intermediary vehicle, a courtesy email to let them know about the upcoming changes will undoubtedly be appreciated, as they may not be aware.

Likewise, if you have any clients that engage such contractors, you may need to determine whether that client is considered medium or large, and therefore within the scope of the reforms.

2. Consider which contracts are at risk

Part of your work with your clients may also involve reviewing contracts and working arrangements to see whether a contractor would likely be considered a disguised employee under IR35.

Part of this review may include using HMRC’s Check Employment Status for Tax (CEST) tool, which lets you know if HMRC would consider a worker to be employed or self-employed.

However, it’s worth noting that, despite recent updates to CEST, the tool may not provide a reliable answer in all cases, so an additional means of IR35 status review may also be appropriate.

3. Make sure your clients understand the basics of IR35

IR35 is a notoriously complex area of tax. Recent court cases, from Lorraine Kelly to Christa Ackroyd, have shown that getting IR35 status correct is not always straightforward, and even HMRC gets the determination wrong on occasion.

While the reforms change who has responsibility for determining IR35 status, the reforms do not alter the underlying IR35 legislation, and what set of working circumstances may (or may not) indicate an IR35 engagement.

As a result, it’s vitally important that all relevant clients know, ahead of the reforms coming into effect, the basics of IR35, its typical hallmarks, as well as what the new SDS is, so that they (hopefully) don’t run into any trouble down the line.

This may mean offering clients some informational sessions to bring them up to speed, sending guidance via email, or simply taking a call to explain the fundamentals – whatever method suits your practice best.

4. Make sure their systems are ready

Ultimately, if a business is going to implement the IR35 reforms correctly, then certain changes will need to be in place across finance, tax, and HR departments, not only to ensure that a contractor’s status is correctly determined, but to also make sure that any disguised employees are paid correctly.

This means that, one way or another, operational software will likely have to be adapted or replaced so that it can cope with the new payroll requirements. This may mean advising your clients of the need to undertake additional training for key staff members, or of the need to ensure that their payroll software is capable of processing payments for any deemed employees.

Note that the above also applies if your firm offers payroll services to engagers that make use of IR35 contractors.

Taxfiler is award-winning accountancy and tax software, with an inbuild practice management solution to help you keep on top of your clients and deadlines. To find out more, email [email protected] or speak to a member of the team on 0330 2233 406.