IR35 draft legislation issued – what are the next steps?

Finance Bill 2019-20: government publishes draft legislation

The draft Finance Bill was issued on 11th July 2019. It includes the draft clauses for the new legislation to support the roll out of IR35 in the Private Sector from 6 April 2020 and it contained no surprises.

The implementation of IR35 in the Private Sector will ‘mirror’ what already happens in the Public Sector, except for 3 new elements:

1. In the Private Sector only Medium and Large businesses will need to operate the new IR35 rules.  The definition of a ‘small’ business (by reference to the Companies Act) is having two out of three of:

  • A Turnover of less than £10.2m
  • A Balance Sheet of less than £5.1m
  • Less than 50 employees

The new legislation says that for an unincorporated body, they just need to have Turnover that mirrors the requirement in the Companies Act, currently less than £10.2m.

2. 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!

3. A new client-led status disagreement process is being introduced. This means that if the worker does not agree with the client’s decision, then the client will have 45 days to review the decision and either:

  • Change it, or
  • Provide the worker with confirmation of their original decision and the client’s reasons for deciding that the conclusion is correct.

What now?

HMRC anticipate 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. It will also affect up to 60,000 organisations that use workers employed by a Personal Service Company (PSC) from April 2020. It wil raise up to £3.1bn in extra tax and NIC from 2020/21 – 2023/24.

However, there are still nine months to prepare for the changes to the off-payroll working rules. From April 2020, it will mean checking whether contractors need to have income tax and National Insurance contributions deductions taken. This shifts the responsibility for conducting such checks from the contractor to the organisation using their services.

It is likely to have a significant effect on the recruitment sector in particular. An estimated 20,000 recruiters will potentially have to operate payroll for any workers they supply who work through their own company.

Also, the jury is still out on the review of the Check Employment Status Tool (CEST). This has been given a vote of ‘no confidence’ by the profession. It will be an important tool for those involved with IR35. However, there will likely not be an update until much later this year.

It should be noted that engagers will not be able to take a “blanket approach” to deciding whether a worker should be treated as an employee for tax purposes. They will be required to show the reasoning behind each determination.

Next steps

Check if your business falls into ether the “medium” or “large” categories.

If you are caught, follow the process below:

If you would like to discuss this with us in more detail or if you have any questions, please contact us on 0191 285 0321 or email advice@taitwalker.co.uk

This article originally appeared on the blog of fellow MHA member firm, MHA MacIntyre Hudson.