2018 Budget Adds New IR35 Twist

The biggest news for many project management practitioners in the 2018 Budget delivered by Philip Hammond, was his decision to delay any implementation of the new IR35 regime in the Private Sector until April 2020. An additional twist was his decision that the new Off-Payroll working rules will only be applied to medium and large businesses. Small organisations will be exempt, but no details of which organisations will qualify for this exemption were released.

As anticipated the chosen path is to pretty much replicate the “successful Public Sector implementation” which the Government has prematurely declared despite there being insufficient data to back-up this claim.

The many lobbying groups claimed a limited success in that the Government had listened to the arguments regarding extensive challenges if the legislation were to be implemented from April 2019. They have also vowed to continue to fight this proposal or at least keep up the pressure through the various consultation phases which will be required before the changes are implemented.

As stated before, the actual IR35 elements of the legislation are not being changed. There remains a duty to identify and collect evidence that a role being filled by a worker engaged through a PSC (Personal Services Company), is not disguised employment. The change is that the responsibility and liability for the decision is being moved from the PSC to the hiring organisation. The assumption being that many more workers will thus become ‘caught’ and begin paying both PAYE and National Insurance contributions.

During the period up to April 2020 it is to be hoped that feedback collected from the Public Sector roll-out is addressed. Including but not limited to elements such as:

  • The fitness for purpose position of the CEST (Check Employment Status for Tax) tool.
  • The legality of ‘blanket decisions’ where hirers such as the MoD, NHS etc are applying an ALL-IN approach rather than reviewing roles on a case by case basis.
  • A robust appeal process to ensure fairness where it is believed that tax is being wrongly deducted at source.

For individual contractors with a PSC and hirers, April 2020 may seem a long way off; however, we would certainly suggest that all parties start thinking through the potential implications of this legislative change sooner rather than later.

  • Contractors will need to think about what and how they deliver their services and in a worst-case scenario what they would do if they were subject to PAYE & NI deductions at source and/or being forced to work through an umbrella company.
  • Hirers need to think about their engagement strategies, risk management, labour supply chains and any IT system changes that may be required to facilitate the changes. Implementation will be crucial, and a wrong approach could lead to significant labour shortages and/or increased costs as the flexible workforce look to optimise their value in the marketplace.

No doubt there will be many twists and turns on this short journey though it would seem highly unlikely that the legislation will not happen. After all, the simplest argument is the need to re-establish a ‘level playing field’ across the Public and Private Sectors, not to mention the additional £3bn that the Treasury is expecting to come their way (£1.1bn in 2020-2021 and a further £1.9bn by 2023-2024).

Off-Payroll working in the Private Sector’ consultation

HMRC published its summary of responses to the ‘Off-Payroll working in the Private Sector’ consultation following Budget. The full outcome can be found here on the GOV.UK website.

As anticipated the consensus amongst commentators has been that the document was snuck out behind the smokescreen of the various budget announcements and glossed over/ignored many of the concerns put forward by the stakeholders.

Once again, a Government consultation has been seen as a tick in the box exercise and done little more than confirm the general fears that an extension of Off Payroll to the Private Sector was always a foregone conclusion.

April 2019 Loan Charge

In between now and the introduction of the ‘Off-Payroll working in the Private Sector’ legislation, anyone who has taken remuneration by way of a loan also needs to be aware of the deadlines linked to this piece of legislation.

Unusually, when the Loan Charge legislation was introduced in 2017, it granted HMRC power to look back almost 20 years over the tax affairs of those involved and the level of “debt recovery” could be life changing for those caught up in the review.

Predictably this potentially devastating piece of legislation is raising high levels of concerns amongst those who are aware of its impact upon their personal circumstances. Some having gotten together to form the Loan Charge Action Group (LCAG) who can be found on the web as well as Twitter.

Some workers who were impacted by the ‘Off-Payroll working in the Public Sector’ legislation, the decision to protect their take home pay by using such schemes may turn out to be an expensive choice.

There are many pieces across the web on this subject such as The April 2019 Loan Charge – Ultimate contractor guide which can be found on the Contractor Calculator website.

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