Draft IR35 reform legislation published – A summary of the changes
The wait is over! It’s finally here. Not the culmination of Love Island, but the draft legislation for Off Payroll Reform, known under many guises – IR35 changes, intermediaries’ legislation, off payroll tax and so on. The draft finance bill finally gives us a clearer understanding of the changes that are due to radically shake up the contract market for clients and candidates alike – or does it?
If you’re new to IR35 (where have you been?!) then here’s a recap of the headlines:
- IR35 is the commonly used term for the legislation that describes the tests that determine if someone is genuinely self-employed for tax purposes
- It’s been around since 1999
- Until 2017, it was broadly the case that the contractor was responsible for determining if they fall into the self-employed category for tax purposes or not, and paying the correct amount of tax
- In 2017, the law was changed where the end hirer was a Public Authority. It made the end hirer responsible for making the determination, and whoever paid the Limited Company was responsible for collecting the correct amount of tax
- In 2020, the law will change so that this applies to both public and private (with some exceptions – read on for more!)
The draft finance bill, published yesterday, sets out how this will actually work. Thanks to the changes in 2017, plus the consultation which concluded only very recently, we have a good idea how this will work - for the most part.
I’m commenting here on some of the key questions we’re hoping are resolved. A full update will be published in the coming days on all of the implications in a bit more detail.
A much-discussed topic has been - what exactly amounts to ‘reasonable care’? We can all take an educated guess, and it should be fairly easy to point to practices which are NOT reasonable care. However, without a clear definition, it’s very difficult for organisations to be confident they have absolutely met this standard – and doing so is CRITICAL to their compliance. So, what do we get in the way of clarity? Well, not much. From first read, it seems the Government has ignored the consultation responses and kept the same ‘use reasonable care’ position – so clients still have no real way to assess whether their own internal process is good enough.
A new wrinkle from the consultation was the idea of a ‘client-lead appeals process’; an appeal process, in theory, would be a good thing. But, when the client makes the original decision, how much value really is there in having the client take a second look at the decision? Lots of consultation responses focused on this and the need for some sort of independent route – but has that had any impact? In short – no. I’m sensing a pattern here, but the Government has resisted calls for an independent review body and stuck to the ‘client-lead disagreement process’.
We know the HMRC intends to exclude the application of the new rules from small businesses as defined in the Companies Act. However, there are lots of questions around how this works in practice, such as who decides if they’re small, and what about mid-year changes?
So, what do we get in the way of clarity on this? Just confirmation of the exemption for small businesses, lots of detail on how it works in group structures, and mid-year changes. I’m not sure this exemption will stand the test of time, as it seems far too complex to implement.
One of the new requirements posited from the consultation was the need for clients to ensure communication of the determination, and the reasons directly to the fee payer and contractor. Again, lots of questions on this from a practical perspective – but did we get answers? By now I expect you can guess the answer to this – no, the Government doesn’t seem to have made any significant changes to what we expected from the public sector changes and subsequent consultation.
So, it seems HMG has pressed ahead with the changes as planned, with what can only be described as tweaks in relation to the public sector legislation. It’s not an ideal picture for clients and contractors – increased liability, risk, administration and cost are all possible outcomes from these changes.
The only sensible option for clients at this point is preparation. With a robust approach to this legislation, clients can mitigate the risks – with a flexible approach some clients may even find themselves in pole position when it comes to attracting high quality contractors.
Preparation is key:
- Identify the contractor population
- Determine where they’re likely to fall
- Decide if you need to flex in working conditions or rates
- Get a full assessment completed (backed by insurance)
- Migrate all your workers onto new contracts – either robust outside IR35 or compliant PAYE solutions
- And finally – document everything, for when HMRC comes calling
If you don’t want to do that yourself, get in touch with Evolution Recruitment Solutions. Our Audit solution does all of that and more, taking you through the options step by step, and managing the risk not just of IR35, but of the Criminal Finance Act, Employment Claims, AWR, commercial risks and more.
This is the biggest change to self-employment legislation since IR35 was first introduced; it makes sense to respond accordingly.