Contractors to prepare for incoming IR35 changes following draft legislation
Last week we saw the draft legislation for the off-payroll working rules which are to be extended into the private sector as of 6th April 2020.
As expected for the reform in the private sector, the rules mirror 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.
Small companies exempt
Suggested early on in the reform discussions for the private sector, and confirmed in the draft legislation, small private sector companies will be exempt from applying the new rules. This means that contractors engaged by a company classed as ‘small’ in a tax year according to the Companies Act 2006 will need to continue operating IR35 as they have done for two decades.
If you are unsure if your client is categorised as small, medium, or large, it is recommended to approach your client to ascertain where the responsibility lies as early as you believe your contract will surpass the 6th April 2020.
Having a conversation can also help to discover if your client is aware of the rules and what their plans are should they be classed as medium or large.
‘Status Determination Statement’ required
HMRC introduced a new term in the draft legislation for hiring organisations to provide 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 seen as 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 contractors as it puts some responsibility on the client to provide you with your IR35 determination as quickly as possible. We also believe this may be an attempt by HMRC to try and reduce incentive for blanket decisions, however this may instead encourage complete banning of contractors as reported at HSBC.
Clients must implement a disagreement process
The draft legislation confirmed the client-led disagreement process suggested in the latest consultation. 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.
Qdos raised 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.
Prepare for reform
A U-turn at this stage is highly unlikely. Whilst there is very little contractors can do with the new rules being put into place, it is important to be ready for the reform by:
- Speaking with your client as early as possible – for your own benefit in ensuring they have some awareness and understanding of the rules, as well as to ascertain the size of the client organisation and their plans come April.
- Understanding your rights and your client’s obligations under the new rules will help ease the transition as you will know what to expect.
- Collect evidence for your current status, particularly if you are operating outside IR35. You will still be liable for applying IR35 on payments prior to 6th April 2020 and it is yet unclear if HMRC will target contractors whose status changes.
Join Qdos’ Seb Maley and Nicole Slowey, as well as FCSA’s Julia Kermode, for a 1 hour webinar on 25th July at 12pm to get ahead of IR35 changes and understand the legislation from a contractor’s perspective. CLICK HERE TO REGISTER
This article was written by Qdos Contractor, leading IR35 advisory who have been at the forefront of IR35 changes. Qdos have been working tirelessly since reform was announced for the public sector in 2017 in order to prevent blanket decisions and have promoted fair and pragmatic solutions as the only suitable way to manage reform.