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In the Autumn Budget 2018 it was announced that the off-payroll rules in the public sector will be extended to the private sector as well; the reform is set for 2020:
“The government has carefully considered all of the responses received and we are now in a position to propose extending rules similar to the April 2017 public sector off-payroll working reform to the private sector. Having listened to concerns, the changes for the private sector will be introduced from April 2020 for medium-sized and large businesses only.”
This means that for medium and large sized businesses, the end clients will be responsible for determining the IR35 status of the contractor, and the agency or end client will be responsible as the ‘fee-payer’ for deducting the relevant tax and NIC before paying the contractors. The government intends to use the existing statutory definition within the Companies Act to determine whether or not a corporate client is small (turnover less than £10.2m, gross assets less than £5.1m and less than 50 employees).
The consultation confirms that in the private sector the smallest organisations will not be affected by the reform and will not need to determine the status of the off-payroll workers they engage; they will be able to continue as they currently do. This relates to the end client, not the contractor.
Those workers who fall inside of IR35 will be required to have PAYE and National Insurance Contributions (NICs) deducted at source from their income.
A consultation on the above proposed measures was published in February 2019; https://www.gov.uk/government/consultations/off-payroll-working-rules-from-april-2020, with Government expected to submit its draft clauses for the Finance Act 2019 in July. The Finance Act will be published alongside the Autumn Statement in November 2019.
Whilst final legislation has not yet been released, we have outlined below some information which may help with your initial steps to assess IR35 status.
What to do if you are an end user
As a medium or large sized end-client business who is engaging the contractors, it is crucial to be fully aware of the changes to communicate effectively and consider:
What contractors should do
The responsibility for determining tax status would be passed on to the end client (if a medium or large sized business) and inside IR35 determinations would place the contarctor onto the end user or agency’s payroll; If the contractor is engaging with a small business then this process still stays with the contractor themselves. In some instances, the agency-end client will only accept contractors operating through umbrella companies or other trading styles.
This lack of control puts contractors in a difficult position for ‘what to do’:
Until reform takes place in 2020, contractors will still be responsible for determining their own IR35 status and is still advised that they continue assessing their status with contract reviews and look to protect themselves against an enquiry. If engaged to a small business, the current rules will still apply even after reform, meaning they will continue to determine their own status as normal with no changes.
Check Employment Status for Tax (CEST)
This is an online tool by HMRC which presents a series of questions in order to help determine your employment status for tax purposes, i.e. determine your IR35 status.
The premise is simple; put in some details about the current contract and the tool will give you an indication of whether or not the contract is inside or outside IR35.
It is built up of a list of pre-programmed series of questions which fluctuates what's asked based on the user's responses. However, the questions stop once the tool believes it has collected enough information (based on the user's responses) to reach a decision on IR35 status.
Use the Check Employment Status for Tax tool here:
Who can use the Check Employment Status for Tax tool?
The tool is intended to be used by the end client, the agency or the worker themselves. It is important to note that within the public sector, the final decision on whether the contract will operate inside or outside of IR35 will be made by the end client, regardless of any results that a worker obtains using this tool. In the private sector IR35 classification is still the responsibility of the contractor.
What contracts can be checked using the tool?
The tool can be used for current or future contracts, either in the public or private sector. The tool asks about the terms contained in your contract and how the work is carried out. This relates to current IR35 guidelines that working practices are taken into account and the terms included in the contract must be mirrored in the working practices.
What questions does the tool ask?
The questions asked by the tool begin with discovering the set up around the contract (who the contractor is and what business structure they work in) before moving on to deciphering who is able to control the performance of the work done under the contract. This allows the tool to create a full overview of the contract.
How is the result of the tool used?
HMRC have stated that they will stand by the result obtained by the tool, unless it is found during a compliance check that the answers given to the tool were inaccurate or an arrangement has been put in place designed to get a particular outcome from the service.
There are a number of concerns and criticisms of the tool and therefore it may be prudent to get an alternative independent view to determine IR35 status.
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