15 January 2020
Government launches IR35 review
The government has launched a review of the proposed changes to off-payroll working rules – typically referred to as IR35. HM Treasury announced that the review aims to address any “concerns” from businesses and affected individuals about how the rules will be applied.
IR35 (which is part of the off payroll working rules) is a set of regulations that intends to combat tax avoidance by consultants who are providing a service to clients via a personal services company (PSC) and would be considered, for tax purposes, to be an employee of the end user company.
The review, which will end by mid-February 2020, will clarify if any further steps should be taken to ensure the efficient execution of the reforms and whether any additional support is required to ensure that the self-employed, who do not fall into the rules’ scope, are not impacted.
Key changes from 6 April 2020
As B P Collins noted last year, a key change to IR35 rules will be that the end-client will become responsible for establishing whether a contract engagement with a consultant via its personal services company (PSC) falls within the rules. Up until then, it is the responsibility of the person supplying the services to make this determination. The rules will bring the private sector in line with the changes brought in for the public sector in April 2017.
This new legislation will only apply to medium or large businesses. There will be an exemption for end-clients who are ‘small businesses,’ where the responsibility for determining the IR35 status of a contract will remain with the PSC and the new changes will not apply.
It’s important to note that the government has included clauses in the legislation to ensure that medium or large businesses do not set-up arm’s length companies or subsidiaries to procure services from PSCs. The legislation will apply to the parent company based on the aggregate amount of turnover and the aggregate amount of the balance sheet total of the connected entities. There’s no small business exemption for public sector organisations and the legislation will apply to all end-clients engaging PSC workers in the public sector.
Chris Brazier, employment and business immigration partner at B P Collins comments:
”Notwithstanding this review, there can little doubt that the new IR35 rules are coming. This review is just focusing on how they will be implemented.
“If you engage a consultant or currently provide your services as a consultant through a PSC, it is vital is to act now to assess your engagements to see whether you fall within the rules.
“For end user companies, we can provide an audit of your arrangements and give you a view as to whether engagements fall within the rules or whether your agreements with your contractors should be restructured. Failure to do this could result in substantial tax liabilities and penalties for consultants and, if not corrected by 6 April 2020, this liability could extend to the engaging company.
“There is every chance that the rules may change at the last minute so please get in touch with B P Collins for the most up to date advice.”