The ‘off-payroll working rules’ are set to come into force from April 2020. Commonly known as IR35, the rules aim to tax relevant workers providing a personal service via an intermediary, typically a limited company, at the same rates as a PAYE employee.
If the new rules determine the working relationship as ‘inside IR35’ then income tax and employee’s national insurance will be payable on amounts invoiced, along with employer’s national insurance contributions.
Much ado about nothing
IR35 was originally introduced in 2000 and over the past 19 years HMRC have had limited success in closing what they deem to be a £1.3bn tax gap.
IR35 was introduced in The Finance Act 2000 sch 12 with the purpose of increasing the tax take from ‘one-man band’ limited companies.
Ironically the increase in instances of individuals trading via limited companies had been due mainly to the introduction of the ‘Agency Worker’ legislation, which aimed to increase the tax payable by individuals finding work via an employment agency.
Although the new ‘off-payroll working rules’ are significant from an operational standpoint, they actually offer no change at all to determining employment status in law.
Since 2000 and the introduction of IR35 it has always been a requirement to determine your IR35 & employment status, and all contractors should have been reviewing contracts and engagements since this date.
The new rules however shift the responsibility for determining the status of an engagement from the worker to the End Client and with the potential tax liabilities falling on them too, what may have historically been deemed an engagement outside of IR35 by the worker, could now be seen as inside IR35 by the End Client.
We have seen many contractors already having conversation with their respective End Clients about these changes.
From April 2020 End Clients will be required to assess the engagements of all workers providing personal services via a limited company.
They are being directed to use the Employment Status Check tool provided by HMRC, [CEST] and HMRC have agreed to stand by the results produced by the tool where the data input is accurate and correct.
If you are a contractor you should be having a dialogue with your clients now to establish how they will be managing their responsibility under the new rules. We are also advising all contractor clients to utilise the CEST tool themselves to get an early indication of current engagement status determinations.
99 Problems and IR35 could be one
Should the status tool determine your engagement to be outside of IR35, with confirmation and agreement from your End Client, the risk of any tax liability arising is mitigated.
The problems arise when the tool is indicating you may be inside of IR35 or you have a disagreement with the End Client as to how the questionnaire has been completed.
It is in these scenarios where there could be contention and currently there is no official route of arbitration. HMRC are not providing any formal platform to resolve employment status disputes and have only suggested that End Client should have a process to manage such conflict.
Ultimately the impact of an ‘Inside IR35’ status determination could have far reaching ramifications for contractors who have been under the same engagement or with the same client for a long period of time.
If historically a Contractors has deemed themselves to be ‘outside of IR35’, would a revised opinion determined by the End Client also create an historically tax liability?
Without doubt these new rules are creating concern amoung Contractors, End Clients and all other players within the supply chain.
With the rules set to come into effect in little over 8 months, this could mean the contract you are currently working under will be impacted.
Its unfortunate HMRC have not provided a mechanism for dealing with status disputes, this could result in the only remedy for disagreement being a break in the contract.
We work with contractors, end clients and recruitment agencies providing advice and compliance services. If you would like a free consultation to see how we can help you manage your limited company, contact us today.