Off-Payroll Working Legislation (IR35) Update

Well, well, well, surprise email of the year arrived at 21:04 pm on Tuesday 17th March 2020 from Mr Williams at HMRC.

Tonight the Government announced that the reform to the off-payroll working rules that would have applied for people contracting their services to large or medium-sized organisations outside the public sector will be delayed for one year from 6 April 2020 until 6 April 2021.

This is part of additional support for businesses and individuals to deal with the economic impacts of Covid-19. This means that the different rules that exist for inside and outside the public sector will continue to apply until 6 April 2021.

This announcement is a deferral of the introduction of the reforms, not a cancellation. The Government remains committed to introducing this policy to ensure that people working like employees, but through their own limited company, pay broadly the same tax as individuals who are employed directly.

I am sure many contractors were celebrating the news, but what does this really mean?

Too Late!

For many organisations the announcement of this latest change, following fast on the last update (27/2/20) confirming it was going ahead will come too late to make any difference.

Organisations who took the planned legislative changes seriously have made significant investments in creating policy and implementing change that addressed the requirements set out in the planned legislation. Many took the decisions to stop engaging with PSC’s (Personal Services Companies) taking some of their contractors onto permanent contracts of employment with others being directed to PAYE arrangements or Umbrella solutions and completed this work before the start of April 2020 to ensure that all payments met the original plan.

Having made these changes and bedded them in, it is hard to see why they would now reverse their policies for this short stay of execution for the legislation. It would make no sense to go through the pain a second time, much better to plough ahead and get used to the brave new world. Add coronavirus into the mix and they probably have many bigger challenges to address?

The Laggards:

For organisations who did not make the necessary changes to meet the original plans and timescales, there is probably a stay of execution rather than an opportunity to carry on regardless for the next twelve months. HMRC had already made two concessions to help organisations who had failed to act; firstly, changing the requirement from money paid from the 6th April 2020 to money earned from the 6th April 2020 being subject to the new tax regime. Then latterly the promise that they would be “taking a light-touch approach to penalties, and businesses will not have to pay penalties for inaccuracies in the first year, except in cases of deliberate non-compliance”. If the world has returned to any semblance of order by April 6th 2021 it is hard to see that HMRC will be as helpful next time to those who have failed to prepare, they will be hungry for tax take and non-compliant organisations will be in the firing line.

Contractors Beware!

For PSC contractors there may also be an interesting scenario if an assignment which has been classified as In-Scope ready for 6/4/2020, suddenly becomes Out. As the IR35 rules have never changed, only the way they are implemented (determination no longer in the hands of the PSC) then a tax inspector who knows that a determination was carried out, could very probably state that the switch is an “obvious cases of deliberate non-compliance” ?

We have seen that HMRC are not shy when it comes to chasing back tax, so PSC’s need to be very aware.

Public Sector:

For those working in the public sector, the decision makes no real impact to their current situation. The Off-Payroll Working Legislation will continue to be applied as it has since April 6th 2017. For these workers they miss out on receiving a SDS (Status Determination Statement) and the right to appeal the foundation of the presented decision.

Again, much work has been undertaken by public sector bodies to generate SDS’s and put in place an appeals process. Sunk effort or something that is worth implementing in advance of the delayed legislative changes? Some would say that in terms of natural justice, workers deserve a fair crack of the whip especially as so many feel that their assessments were made in a blanket manner.

The Final Warning:

So, in summary, it feels hard to tell what the real impact of this postponement will actually be. There are already anecdotal tales that some private sector organisations are re-hiring on “old terms” and public sector organisations are winding back the impending changes. Compared to other challenges, does it really matter at this point? Is it a victory? Is it a defeat? Whatever it is, it is important to note that the Chief Secretary to the Treasury Steve Barclay advised “This is a deferral, not a cancellation, and the government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company, pay broadly the same tax as those employed directly”

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