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Off-payroll draft legislation reveals few surprises

Off-payroll Draft Legislation reveals few surprises

HMRC published the draft off-payroll legislation last week as part of the Finance Bill 2019-2020. The legislation confirms that the off-payroll reforms will be extended to the private sector from April 2020. The draft legislation follows just weeks after the government consultation, however many of the issues raised by industry bodies have not been addressed in the proposed legislation. There are fears that the reforms have been rushed through, and that businesses won’t have sufficient time to prepare for the reforms, which see responsibility for making IR35 status determinations transfer from the individual contractor to the end client.

The key points of the reform are as follows:

Small business exemption: Despite the general feeling that the small business exemption proposed by the government is subject to too many variables to be of practical use, the legislation confirms the exemption in line with Companies Act 2006 definition (i.e. the client’s company must have a turnover of less than £10.2m, balance sheet total £5.1m or less and fewer than 50 employees). However, since a good portion of the draft legislation addresses numerous ‘variables,’ this only seems to reinforce the point that the exemption criteria for small businesses is too complex and therefore open to possible exploitation.

Liability in the supply chain: The issues of liability in the supply chain remains a controversial subject. The proposed model means that liability can transfer up the chain where non-compliance arises. This was criticised as being unfair, since a compliant party can ultimately be held liable for tax and National Insurance Contributions. The liability would ultimately transfer over to the client if HMRC failed to collect the liability from the first agency. The legislation does not address the issue of unfairness. However, paragraph 15 of the draft legislation amends the PAYE Regulations with the effect that HMRC can decide to collect tax and NICs from a different party within the supply chain, for example a second-tier supplier. This effectively gives HMRC more options for tax collection.

Non-compliant blanket assessments: A new term “status determination statement” has been introduced – referring to the IR35 decision which must be passed down by the client. Clients will have a duty of reasonable care to complete a status determination for each assignment, so a status determination will not count if the client has failed to demonstrate this. In theory, this is meant to address the issue of non-compliant blanket assessments that have featured prominently in the press recently.

Independent appeals process: Despite the fact that non-complaint practices such as various forms of blanket assessments have been being uncovered, the legislation fails to make provision for an independent statutory appeals process. The legislation confirms that there will be a client-led status disagreement process, and that clients must respond to a disputed decision within 45 days. However, this does not address the considerable concern that was raised by industry bodies that the power to decide status disputes should not rest with an interested party. The proposed procedure places an unfair responsibility on clients, while also placing contractors at a clear disadvantage.

Elsewhere in the legislation HMRC reiterates its intention to introduce fairness to the tax system. To this end, the document states that the public sector reforms have been successful and that the economic impact will be negligible. It also states that there will actually be savings for PSCs, as they will no longer have to make their own determinations or pay accounting fees. This selective viewpoint has met with much derision from contracting bodies who have pointed out that the complexity of the reforms only increases the need for seeking specialist services. There is also concern that the reforms will hit the economy hard while the issue of Brexit is still unresolved.

Contractors need to make sure they inform themselves on the reforms and how they might be affected. If you find yourself caught by IR35 there are options that could be open to you, including joining an umbrella company or renegotiating the contract terms to remain inside IR35 if the client is willing to do this

If you have any questions about the off-payroll working rules get in touch with our team today.

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