HMRC have this morning announced a fundamental change to the upcoming off-payroll reforms and formally published the updated guidance following their slip up earlier this week.
In a bid to buy more time to try and patch up what many are predicting will be a disaster for the economy and big and small business alike, they have confirmed that the changes will now only apply to payments made for services that are provided on or after the 6th April 2020, rather than for payments made post-6th April 2020, even if the services were performed before this date. Therefore, any February or March workdays will be subjected to the old rules, regardless if they are invoiced and paid after 6th April 2020.
This change has been announced in advance of the publication of HMRC’s ongoing review which is due later this month.
Many are calling this a last ditch attempt to try and address businesses’ concerns over what payment rules apply and when, rather than have to issue a delay to the implementation. It is safe to say that most still believe the changes will be coming into force on the 6th April 2020, and the fact that we now have the guidance being formally released ahead of the review being concluded makes it clear that we are very unlikely to see any significant changes or a delay coming out of the review.
Whilst we await the outcome of the review, remember there is less than 2 months to go to ensure your contractor workforce is assessed with reasonable care and you have clearly defined processes in place to be ready to be compliant come the start of the new tax year. If you have any queries or would like to discuss how your business may be impacted by the off-payroll reform, please contact Charlotte Edwards (Charlotte.firstname.lastname@example.org) or your usual AAB contact.
What about IR35 and the Construction Industry Scheme?
Due to the temporary nature of projects in the construction industry, many construction companies use a large number of contractors. Those who pay subcontractors to deliver their construction work are already required to register and report under the Construction Industry Scheme “CIS”, which requires them to deduct a sum from their payments to their subcontractors and report on a monthly basis to HMRC. This is then paid over to HMRC as part of the subcontractor’s tax contributions.
The changes to the IR35 rules apply to medium and large sized private sector companies which will mean a large majority of construction companies will be required to apply these rules. Even though companies under CIS are deducting partial contributions towards the contractor’s liabilities, the IR35 reform effective April 2021 means they will need to be increasingly aware of the details of their contractors contracts as well as considering their working practices to determine if IR35 applies or now. Reviews of current contracting arrangements in place must begin immediately, as it is the end-user of the subcontractor’s services responsibility to determine whether their contractors fall inside or outside IR35. Engagements that are deemed inside IR35 and deductions required as a result will take precedence over the CIS rules.