Nigel Morris, Employment Tax Partner at MHA MacIntyre Hudson, explains the implications of the delay:
“Chief Treasury Secretary Steve Barclay last night (Tuesday 17th March 2020) announced IR35 tax reform in the private sector will be delayed to Monday 6th April 2021 as part of the government action plan to support businesses and individuals through the economic impacts of Covid-19.
“It was made clear this is a deferral, not a cancellation. The government remains committed to introducing this policy to ensure people working like employees, but through their own limited company, pay broadly the same tax as individuals employed directly.
“This is very good news for potentially affected businesses, who have more than enough to focus on managing the impact of coronavirus. The delay will be a relief and provides some welcome breathing space. The only blow is to businesses which have been working hard to prepare for the changes and already adjusted contracts, processes, policies and infrastructure in time for the original start date in just 20 days, which was confirmed just last week in the Budget.
“There’s no suggestion that the approach to implementation of IR35 in the private sector will change, just the timing. It will largely mirror what already happens in the public sector, bar three new elements:
– it only applies to medium and large businesses;
– all clients (businesses using the services) are required to issue a Status Determination Statement (SDS)
– if a worker does not agree with the client’s decision, the client will have 45 days to review the decision.”
“HMRC hasn’t adjusted its view that the changes in their current form will impact roughly 170,000 individuals working through their own company, who would be employed if engaged directly, as well as up to 60,000 organisations that use workers employed by a personal service company (PSC), and will raise up to £3.1 billion in extra tax and national insurance contributions (NIC).
“There’s more time to prepare for these changes to off-payroll working rules, but they remain extensive, including checking whether contractors need to have income tax and NIC deductions taken and shifting the responsibility for such checks from the contractor to the organisation using their services. Given organisations need to provide reasons for each determination, a blanket approach to deciding whether a worker should be treated as an employee for tax purposes is not
“In addition, the jury is still out on the Check Employment Status Tool (CEST) – it’s been given a resounding vote of ‘no confidence’ by users and their advisers. It will be an important tool for those involved with IR35, but the recently released revised version still appears to be flawed. Improvements would make for a much smoother adoption process.”
The three new elements of IR35 for the private sector
– Only medium and large businesses need to operate the new IR35 rules. A ‘small’ business is defined by reference to the Companies Act as having two out of three of:
– A turnover of less than £10.2 million
– A balance sheet of less than £5.1 million
– Less than 50 employee
– All clients are required to issue a Status Determination Statement (SDS), however, a statement is not a status determination statement if the client fails to take reasonable care in coming to the conclusion mentioned on the statement
– A new client-led status disagreement process is being introduced, so if the worker does not agree with the client’s decision, the client will have 45 days to review the decision and either:
– Change it
– Provide the worker with confirmation of their original decision and the client’s reasons for deciding that the conclusion is correct.