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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.

28th Feb 2020
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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.”

Soft-landing confirmed

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 This statement was originally made in October 2019 in an HMRC issue briefing which said: “HMRC have taken the decision that they will only use information resulting from these changes to open a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.

Size matters

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.

Status determinations

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. 

Overseas engagers

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.”

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Replies (13)

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By johnjenkins
02nd Mar 2020 10:15

If HMRC carry on with this IR35 nonsense then stagnation will follow. We already have major projects having vast (not small) increases in costs. How will the cost of MTD come out when all the IT subbies either leave the country or are forced onto PAYE?

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7om
By Tom 7000
02nd Mar 2020 10:15

Well its academic isn't it? As any FD worth his salt is just going to ban the lot?

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By Mikolaj
02nd Mar 2020 11:00

Last minute tweaks are meaningless and a waste of time for all involved, no surprise there. IR35 in itself is anti-business; it prevents a sub-contractors from effectively operating in the what was growing gig economy. Going ahead with this absolute insanity will not only detrimentally affect sub-contractors it affects accountants and will mean a massive outflow of talent from the UK to other more amenable markets.
HMRC what has happened since the despotic introduction of IR35 in the public sector, hospital waiting lists across the UK have risen massively, a significant factor of this is that doctors can no longer work as locums without loosing more than 50% of their pay in taxes (PAYE), so they don't work extra, this is not rocket science [review locum hours in the NHS down 50% in the years since 05/04/2016).
Most if not all public sector outsourced contracts including for the armed services are in failure and/or melt-down as they can no longer hire sub-contractors, why are the politicians ignoring this? IR35 has hamstrung large parts of the public sector, it has made it much worse not better.

Until very recently I thought we had a business friendly conservative government.
It seems my trust may have been misplaced.

IR35 in all its guises needs to be scrapped. Boris and Rishi are you listening, you will reap what you sew with IR35!!

A good government can be destroyed by errant policies initiated originally by the inept but continued and carried through due to the abject ignorance of policy ramifications.

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Replying to Mikolaj:
7om
By Tom 7000
02nd Mar 2020 11:14

It isnt going to happen and at least this creates a level playing field for the Governments procurement arm.

But yes you are right about accountants... I can see 3000 unemployed ones in next 6 months....and lots of people retiring as practices become uneconomical, when 10-20% of fee bases disappear.

What with brexit and corona virus... a bad fiscal year coming up

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By beatricemac
02nd Mar 2020 11:46

What is most worrying about this reform, is the innacurary of renaming limited liaiblity companies as personal service companies, and its unfairness. Most contractor companies provide an interim service , filling usually high skill gaps which will either ultimately be filled with permanent hires (once they have found the right candidate which can be a very lengthy process) or which have a limited life span relating to the specific project. As mentioned above, to force the contractor into a PAYE situation which, more often than not a permanent employee would not take because of its temporary interim and often part time nature, and subjecting them to the same employment tax burdens without any of the employee benefits or, as importantly, employee rights, is creating a category of second class workers with no recourse under employment law .
What happens when the client line manager exploits the contractor who is now under a fixed term salaried contract with an umbrella company (which hopefully is HMRC compliant)? The contractor will have no recourse to such behaviour and if the contractor wished to leave prior to the end of the fixed term contract , it is highly likely the line manager would insist on the contractor paying to get out of its contract.

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Replying to beatricemac:
7om
By Tom 7000
02nd Mar 2020 11:55

Thats why you need to be careful giving advice. Most of mine are advised to become employees rather than temps... because thats all an umbrella is....likely the cash will be the same but the pension benefits and HR protection is better

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Replying to Tom 7000:
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By beatricemac
05th Mar 2020 08:50

Hi Tom, not sure what you are saying. I set up my limited liability company 10 years after 3 years salaried under an umbrella and more than 20 years as a full time permanent employee. I've worked as a contractor because i want only interim roles and preferably part time, aiming to work no more than 9 months a year. because of the blanket decisions of clients, I'm not being given the choice and have to use an umbrella company. I have absolutely no desire to use an umbrella company but am outraged that I have no choice particularly as I am so fully aware of the complete lack of benefits or rights.

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Replying to beatricemac:
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By beatricemac
05th Mar 2020 09:39

ps . apologies for all the typos...

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Replying to beatricemac:
7om
By Tom 7000
05th Mar 2020 11:52

If the people give you a choice between being an umbrella or going on th e payroll, weigh up the options carefully. If you are not given a choice....well you are left with Hobson's :)

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By cfield
02nd Mar 2020 13:14

So HMRC has been clear that determinations need to be made on a case by case basis. This is either pie in the sky or utter hypocrisy. No large organisation is going to waste thousands of hours assessing each contractor individually. At best they will assess roles, but they've already made the decision not to hire outside IR35 anyway, either publicly or in secret, so they will blanket-assess everyone inside IR35 whilst pretending to follow the rules. They will not risk HMRC enquiries by sticking their necks out and letting some people off the IR35 hook. HMRC know this and secretly approve but pay lip service to the idea of individual assessments just to make it sound fair.

The key people firms can't afford to lose (not loose all you bad spellers out there) will be offered better terms. The rest will be made to pay the employer NI bill (another hypocrisy as they promised to stop this but haven't stopped firms reducing day rates which has the same effect). Most firms will wait a few months for the hoo-hah to die down and then quietly relax their policy on contractors so projects don't stall and they are not outbid for the best people by smaller more flexible competitors.

You have to remember all this nonsense comes from politicians and bureaucrats who are driven by factors other than good commercial sense. Bureaucrats in particular are immune to market forces as they still get their fat salaries at the end of the month and tend not to get made redundant when the economy goes pear-shaped. They are all careermen paying 45% tax and don't like the idea of "temps" paying less tax than them. Politicians, on the other hand, are driven by votes and public opinion. They strive to look "fair" so they can keep their positions and get more people to vote for them. They often trot out that awful phrase "level playing field" to justify their policies - a phrase so mis-used and debased now (even on here it seems) that it has become a cruel parody of the truth. Even the EU are using it now. If that doesn't tell you what a cover-up phrase it has become, nothing will. In their case, of course, the real motive is to keep control of our economy and hamstring us.

There's not much point in rolling the playing field flat when the team at one end has hot showers and changing rooms full of the latest mod-cons but all the team at the other end has is a bucket of cold water on a chain. If all contractors were given pensions and holiday pay, like real employees, then there might have been some fairness in these rules, but that won't happen in a million years. The whole policy would have been shot down in flames very early on.

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Caroline
By accountantccole
02nd Mar 2020 13:30

Anyone got some links to worked examples? struggling to fund any

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By Mallock
02nd Mar 2020 14:55

I haven't seen a single case of an engager deciding that a contractor was outside the new IR35 despite that fact that most are experts in their field, work only between one and 3 months for any one engager at a time and are preparing reports and reviews without any supervision, direction or control.
Large organisations are risk averse and won't take any actions which could lead to penalties or an overly interested HMRC.

This debacle will significantly reduce UK plc's competitiveness and its flexibility and will increase costs big time: that is if the engager can even persuade a contractor to become an employee when it may include uprooting family and moving elsewhere in the country.

I have already seen some receiving 50% pay increases, some who are retiring early and others who have gone abroad - and this is somehow meant to be good for the country.

This kind of legislation is what you get when the Government abdicates responsibility for tax policy to HMRC (and Statutory Instruments) and fails to take account of any of the genuine concerns of those who actually know what is happening on the ground.

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Replying to Mallock:
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By johnjenkins
02nd Mar 2020 15:21

You won't, simply because the new "contract for services" has a clause indemnifying the engager of all liability to tax, even IR35 investigations and subsequent outcomes.

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