IR35: Last minute tweaks to off-payroll working
A soft-landing has been confirmed for engagers, alongside changes to the law to make it easier for contractors to understand whether their engagers are within the new rules or not.
The report into the limited review into the implementation of the off-payroll working rules was published by HM Treasury on 27 February 2020.
This confirms that the roll-out of the off-payroll rules to the private sector will take place on 6 April 2020. However, HMRC has committed to commissioning external research into the impacts of this reform, including how the status determinations are being made, six months after the implementation.
Annie Gascoyne, CBI Director of Economic Policy, commented: “The six-month review will be an important marker to test whether the policy is having the desired effect. It’s important that the review includes a full and comprehensive impact assessment, properly assessing the admin burden for business and the impact on labour market flexibility.”
As the Chancellor accidentally let slip last weekend, there will be an effective soft landing for the off-payroll working rules in the first 12 months after implementation. Penalties for inaccuracies relating to off-payroll working will not be imposed on engagers unless there is evidence of deliberate non-compliance.
Seb Maley, CEO of Qdos, is disappointed with the scope of the soft-landing. He noted “While applying a ‘light touch’ to the reform for the first 12 months is welcomed, this is a red herring. It only applies to penalties, and not necessarily to the additional tax liability owed as a result of inaccurate employment status determinations.”
No looking back
In the report, HMRC reiterated that it will not use information from the implementation of the new rules to open up IR35 enquiries into contractors for earlier tax years. This statement was originally made in October 2019 in an HMRC issue briefing which said: “HMRC have taken the decision that they will only use information resulting from these changes to open a new enquiry into earlier years if there is reason to suspect fraud or criminal behaviour.”
As far back as October 2018, HM Treasury confirmed in a factsheet that the off-payroll reforms would not be retrospective. However, the myth of retrospection continues in the contracting market. HMRC has promised to reassure contractors that they are not at risk of IR35 enquiries for earlier years, even if they are treated as within IR35 from April 2020.
A practical point highlighted by the ICAEW Tax Faculty is how the contractor can determine whether the engager is a large or medium-sized organisation, and thus has to make the status determination. Where the engager is not large or medium-sized, the decision as to whether the contractor is within IR35 remains with that contractor and his own personal service company.
The report confirmed that engagers will be required by law to respond to requests for information about their size (whether medium or large) from an agency or worker. HMRC is also going to update its guidance to help engagers understand how they must react to such requests.
How the engager makes the status determinations is another sticking point for contractors.
HMRC has been clear that determinations need to be made on a case by case basis, and the engager must take ‘reasonable care’ over the process. Businesses have requested further guidance around what behaviours would indicate that they have taken reasonable care. The HMRC employment status manual now contains a draft discussion on what actions would indicate the engager has taken reasonable care.
The law around how a contractor can complain and resolve disputes over status determinations will also be clarified, and HMRC has promised to update its guidance in this area.
The law will be amended to ensure that overseas engagers who have no UK presence will not have to consider the off-payroll working rules.
Spreading the word
HMRC will run a targeted communications campaign for contractors and engagers to raise awareness and to correct misinformation in the market. This campaign has already started with HMRC undertaking the following activities:
- Writing to 43,000 medium-sized businesses and offering one to one support to the UK’s 2000 largest employers
- Holding workshops and webinars with tax agents, recruitment agencies, charities, public bodies and contractors
- Providing a factsheet for engagers to share with contractors
Jeremy Coker, President of the ATT, appealed to HMRC to continue to engage with professional bodies after the new rules begin in April, to ensure that any problems are promptly identified and addressed.
He commented: “We must have ongoing support from HMRC to help businesses get their employment tax status decisions correct, and to support affected contractors in understanding their position and their rights.”