In January, the Government confirmed their review of the IR35 off-payroll tax reform.
Rather than changing the underlying legislation, during the review, they will focus on how the reforms can be implemented smoothly. This makes clear that the Government has every intention of pushing the changes through from 6th April 2020.
The fundamental shift is that, in the majority of cases, end-clients will be responsible for determining the IR35 status of contracts undertaken by Personal Service Companies they engage, rather than the directors of the Personal Service Company (“PSC”).
If this assessment concludes that a contract is deemed to be inside IR35, it will be the responsibility of the fee payer (the party paying the PSC), to deduct the appropriate PAYE tax and NIC, as if they were an employee, prior to paying the PSC.
These reforms, which broadly mirror those which were introduced in the public sector in April 2017, are set to be extended to the private sector as planned. This gives a very tight timeline to those who do not already have their preparations well underway:
- 7th January 2020 - review into off-payroll reforms announced
- mid-February 2020 - review to conclude
- 11th March 2020 - Budget 2020
- 6th April 2020 - changes to come into force
Some major private sector organisations, including financial heavyweights Barclays and HSBC, have already said that they will not be engaging off-payroll contractors going forward, and will instead bring them onto PAYE, with other big corporations likely to follow suit. They haven’t said whether they will be increasing hourly rates so that the contractors are not worse off - presumably this will be subject to individual negotiation.
PAYE options may mean being employed directly on the client’s payroll or being engaged PAYE via a recruitment agency or umbrella company.
Know where you stand with IR35
Check your status and engage with your clients
If you are a worker supplying your services through a limited company, you will have already assessed the IR35 status of your contract in order to decide how to take your pay, but have you documented the assessment and does it need to be updated?
Do you know your clients’ stance on IR35? You should already be comfortable with the existing determination of your IR35 status, but are you comfortable with how your end client will view the working relationship?
You need to be well-informed about your own contract and working practices, in case you need to contest an IR35 decision you don’t agree with.
Is your client classed as a small company? If so, the changes do not apply.
CEST stands for Check Employment Status for Tax and is HMRC’s tool to assist workers, clients and other stakeholders assess the IR35 status of a contract.
It uses a series of questions and at the end gives a determination of whether IR35 applies or not. CEST has been widely criticised for not covering all areas to allow an accurate determination of employment status as it does not include any questions around Mutuality of Obligation.
Somewhat confusingly, HMRC have said that use of CEST is not compulsory but it is also the only IR35 decision-making tool they will stand by, but only if they agree that it was completed correctly.
Independent testing tool - IR35 Shield
To provide further assistance, Boox have partnered with IR35 Shield to provide an online, independent testing tool to check your IR35 status, using more detailed questions about your contract and working practices. It will produce a determination and risk level based on your responses and IR35 case law.
We would recommend that you complete this test, both to have documentation of your current IR35 treatment, and in case you don’t agree with any status determination.
To use this FREE tool, just contact your Boox team and we will provide you with login instructions.