The draft Finance Bill 2019-20 was released by the Government last week. As expected, it confirmed their intention to press ahead with off-payroll changes in April 2020. Champion Contractors are one of our IR35 partners and have extensive knowledge and experience in supporting legislation changes around IR35, having worked together with numerous public sector clients in preparing for their deadline back in April 2017. The Champion business has compiled a brief list of questions/answers below which will assist your understanding of the proposed legislation.
The draft document basically confirmed all of the proposals that had been outlined in previous consultations, however, there was further detail regarding the client led appeals process and small business exemptions.
1. Who is responsible for determining IR35 status?
The draft legislation directly mirrors the public sector changes effective in April 2017 and therefore it will be the end user (client) who is responsible for confirming the employment status of every PSC contractor within their organisation.
2. Will this lead to blanket inside IR35 decisions by the end user?
In theory NO. HMRC will insist that the end user produces a Status Determination Statement (SDS) to outline and confirm the reasons behind each and every determination.
To reinforce this position, the legislation will require the end user to forward the SDS to all parties below them in the contractual chain, as well as passing a copy of the document directly to the PSC contractor. Additionally, the SDS document will be deemed to be worthless, if it is later found that the end user has failed to take reasonable care in preparing and agreeing the determination.
3. Will the agency be able to appeal against a determination?
At this moment in time, it is not abundantly clear if the agency will be able to appeal any determinations.
As the fee payer in the relationship however, the agency does have potential tax risk and we would therefore advise that they are closely aligned to their clients throughout the assessment/determination process.
4. Will the contractor be able to appeal against a determination?
Yes, the legislation includes statutory provision for a client led appeals process, whereby the PSC contractor has the right to appeal and where the end user must respond within 45 days. If the client agrees to change a determination, they will also be required to produce an updated SDS document.
We believe that the introduction of a statutory appeals process really highlights the importance of including PSC contractors in the overall decision making process. If contractors are able to express their views and opinions, this will surely lead to more balanced decisions and will potentially reduce the number of appeals/disputes.
5. Who is responsible for any potential tax liability?
HMRC have re-confirmed their view that the first agency in the supply chain “has enough visibility of the labour supply chain to influence compliance.” They have also stated that the end user can “influence compliance” through their decision on which agencies/suppliers they use.
The legislation will therefore be in line with the most recent consultation material, meaning that liability can transfer back up the supply chain to the first agency and as far as the end client if HMRC are unable to collect the liability from the first agency.
HMRC will provide guidance to illustrate circumstances where they will not seek unpaid labilities from parties further up the supply chain.
6. Are there any exemptions?
HMRC have confirmed that small businesses will be exempt from the new IR35 rules. PSC contractors who provide services to small businesses will be responsible (as they are now) for determining their own IR35 status.
The exemption for small businesses is as per Sections 382 & 383 of the Companies Act 2006. Further details have also been provided to explain what happens where a company ceases to be, or reverts back to being defined a small business.
It is important to remember that it is the end user receiving the service that is considered for size and exemption, not the agency who supplies the contractor.
In a view shared by many industry commentators, the Government has comprehensively failed to listen to major concerns raised throughout the consultation process. Many attempts were made to ask them to think again about IR35. There is now however no alternative but to understand and work with the new rules.
The Champion business is fully committed to helping our PSC clients, partner recruitment agencies and their end clients navigate the new private sector IR35 rules. We have been working closely with all parties for many months and will now accelerate the assistance that we can robustly provide.
We have a new IR35 portal ready for release and we are, along with our legal partners, very confident in our ability to offer a market leading service in the months ahead.
Please also note, HMRC have published this legislation in draft for technical consultation before the relevant Finance Bill is laid before Parliament. The final contents of ‘Finance Bill 2019/20’ will be subject to confirmation at Budget 2019. The technical consultation will close on 5 September 2019.
Champion and Morson will provide more information over the coming days and weeks. If you have any urgent question or queries, please contact IR35@morson.com