HM Revenue & Customs, IR35

IR35 – Further guidance from HMRC as off-payroll working for the private sector comes into force.

The Government has confirmed that the changes to off-payroll working will go ahead from 6 April 2020. However, they have made several amendments to address concerns raised during the review process, which we have summarised below.

While this clarity is welcome, it won’t be until the implementation of the new rules that we see how well they work in practice.

Many contractors and client entities alike continue to be unprepared for 6 April; With only weeks to go, organisations and individuals must consider the impact of off-payroll working. While HMRC has stated that they will be taking a “light-touch” approach in the first year, this is not carte blanche to carry on with “business as usual”.

Concern HMRC Response
HMRC should take a more lenient approach to allow businesses time to adjust to the changes from 6 April 2020. In the first year, penalties will not be charged for errors relating to off-payroll, provided non-compliance is not deliberate.
It is not clear when the new rules will begin to apply to payments. The Government has announced that the rules will only apply to services carried out from 6 April 2020 onwards. Payments made after 6 April 2020, which relate to services carried out prior to this date, will not be subject to the new rules.
Not everyone is aware of HMRC’s commitment not to open historical enquiries based on new information arising from the reforms. HMRC has confirmed that new information arising from changes to the rules will not be used to open new investigations into Personal Service Companies for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour. HMRC will advertise this in its communications to contractors.
Agencies and representative bodies are concerned about determining whether the client organisation is ‘large’, ‘medium’, or ‘small’ and therefore, whether the rules apply. The Government will place a legal obligation on clients to provide information about their size when requested. See our previous article IR35: What does small really mean?
Further guidance is required on how to operate a number of the components of the reform. HMRC has published detailed guidance on the reform. The Employment Status Manual guidance has also been further updated.
There is not enough support for contractors in understanding the changes. HMRC is helping contractors prepare for the changes by stepping up its communications, launching further products and publishing a help sheet specifically for contractors.
There are concerns that clients are taking a blanket approach and categorising all engagements as employment, regardless of the facts. The Government has made it clear that all engagements must be reviewed on a case-by-case basis.
More clarity is needed on how to use the client-led status disagreement process. The legislation will be made clearer on the time limits for bringing a disagreement. HMRC has also updated its guidance to make the use of the process clearer.
The Check Employment Status for Tax (CEST) tool is not accurate. The Government has tested the CEST tool rigorously against known case law, and HMRC stands by its results. In addition, HMRC’s guidance for the CEST tool has been updated to ensure that questions are clearly understood.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article serves as a general guide.