The draft legislation was released on 11 July 2019 for the off-payroll working rules coming into effect for the private sector on 6 April 2020. There was nothing especially new in the legislation with the reform in the private sector mirroring those already in force in the public sector with some small tweaks. The draft legislation will apply to both sectors bringing the policies in line as the ‘off-payroll working rules’ which will pass the responsibility of applying IR35 to the engager.
In my blogpost from 27 March 2019 the draft legislation confirms that the off-payroll working rules will not apply to small and medium sized enterprises. For most of you this makes no difference as you are engaged by big multi-national corporates but something to note.
Status Determination Statement
There was a new term introduced into the draft legislation for IR35 decisions referred to as a ‘status determination statement’.
A status determination statement must be provided to both the contractor and party paying the contractor. It must include both a decision and the reasoning behind the decision. Failure to do so will be a failure by the client to fulfil their obligations, and thus the liability will sit with them until a suitable status determination statement is provided.
This is good news for you as you will now have visibility of the IR35 status determination by their engager. It is hoped that this will also reduce the incentive for blanket decisions by the engager. Although, HSBC maintains its blanket approach asking all contractors to become permanent employees or leave.
Clients must implement a disagreement process
The draft legislation confirmed a client-led disagreement process. Clients will have 45 days to consider and respond to any disagreements of a status decision brought to them by the contractor or fee-payer, with reasoning behind their decision.
There are concerns regarding the client-led process in responding to the consultation – clients will essentially be able to withhold their original decision with no further avenue for contractors to dispute it, providing contractors with nothing more than take-it-or-leave-it ultimatums.
Currently, a contractor can challenge HMRC regarding their IR35 status; an appeal can be heard by Alternative Dispute Resolution (ADR) and/or judge at a tribunal hearing. With the client-led process, clients with no previous IR35 experience or in applying case law, and which are unlikely to remain impartial in the process, are the only route contractors will be able to address any concerns.
What to do?
Firstly, it is highly unlikely that there will be a u-turn on the legislation, therefore, it is imperative that you are aware of it and its implications. It is also worthwhile to have a check of your IR35 status currently in anticipation of the new legislation. You can also sort legal advise about your IR35 status.
Some of you may have used or know of CEST (Check employment status for tax) which is a HMRC online tool to determine IR35 status. Be cautious using this as it appears that CEST fails to reflect many previous tax tribunal decisions on whether a worker is genuinely self-employed or a disguised employee and as such subject to PAYE and NIC. Worse still when the information regarding the TV presenter Lorraine Kelly was put into CEST it said that she was really an employee, contrary to the clear decision of the tax tribunal.
I am attending a seminar next week on IR35 and will report back to you my findings.