Specific plans for further IR35 reform revealed
Last week the Government released the draft legislation for IR35 reform in the private sector, revealing the details for changes which will see medium and large companies take on the responsibility for administering the tax status of contractors. With the IR35 reform plans revealed, in this post, we take a closer look at what’s been said..
In the build-up to the arrival of the draft legislation, which was published as part of the Draft Finance Bill, many IR35 specialists were working off the basis that the proposed rules would be very similar to those introduced in the public sector two years ago.
As expected, this turned out to be the case, which reinforced the theory that the Government intends to use public sector changes as the blueprint for private sector reform.
Much like in the public sector, end-clients will become responsible for setting the IR35 status of the contractors they engage from 6th April 2020. The liability, which currently sits with the contractor, will also shift to the fee-payer in the labour supply chain, which is typically the end-client or the recruitment agency.
Small companies excused but concerns remain
The most notable difference is that HMRC will make small companies exempt from incoming reform. This means that reform will not apply to businesses with a turnover not over £10.2m, a balance sheet total of no more than £5.1 or under 51 employees.
While this initiative has been welcomed by experts, including QAccounting, given it means contractors will be able to carry on determining their own IR35 status when working with small companies, concerns remain.
It has been argued that the draft legislation fails to make it a requirement for small companies to notify contractors that they are exempt from incoming reform. According to IR35 specialists such as IPSE, this could leave contractors confused about whether they should prepare for the changes or not.
Appeals process misses the point
Following the introduction of public sector reform, many contractors found themselves wrongly placed inside IR35 by clients that were looking to protect the liability they now carry. This is reportedly still happening, with engagers making blanket IR35 decisions despite the fact this course of action is not compliant.
It’s why the draft legislation has introduced a client-led disagreement process, which has been designed to help contractors challenge inaccurate IR35 assessments. However, QAccounting partner and leading IR35 expert, Qdos Contractor, has criticised the process, given it is led by the client and should they disagree with a contractor’s opinion, their decision will stand. Qdos Contractor CEO, Seb Maley, said: “After 6th April 2020 in the private sector, the taxman seems to be restricting the freedom to appeal.”
The IR35 advisory also made the point in that leaving the client to lead the dispute process, it is clear that HMRC “does not want to be involved and isn’t interested in setting up an independent body to oversee the appeals process.”
Reason for IR35 decision to be shared
The draft legislation confirmed HMRC’s plans to make end-clients share the reason behind an IR35 determination with other parties in the supply chain.
This is considered a move to increase transparency among each party as the Government looks to stop end-clients making risk-averse decisions. To encourage end-clients to adhere to these rules, the end-client will carry the liability until they provide what HMRC has described as a ‘status determination statement.’
Following the publication of the draft legislation, sector experts reacted both with concern – that HMRC has said it does not believe changes will impact contractors – and pragmatism – that with the draft legislation now published, agencies and end-clients can start preparing to manage these changes.
Our very own CEO, Mike Butchart, was quoted in a number of leading publications, including Computer Weekly, in which he said: “With the release of the draft legislation, recruitment agencies and medium and large engagers can start putting processes in place to manage reform next year with a degree of certainty.”
Learn more about QAccounting’s range of IR35 services here.
Autumn Statement – Headline Changes
Autumn Statement – Headline Changes
Extracted from the ACCA Guide to the Autumn Statement 2022
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