With April 2021 creeping up on us, businesses in the private sector must ensure they are ready to face the delayed IR35 off-payroll working reform head on to ensure compliance with the legislation. This will mean taking the time now to implement robust processes and procedures for managing contractors going forward, including the completion of employment status assessments where required.
While the impact of COVID-19 has seen a number of businesses have to make the difficult decision to let some of their workforce go, and we suspect contractors will have unfortunately been the first of those to take the cut, as the world starts to get back to some sense of normality, businesses may choose to engage more contractors to allow for greater flexibility should the situation worsen again. With this in mind, businesses must be aware of the additional requirements they will need to meet surrounding contractors come April 2021 when the legislation is set to change.
Recap of the changes
Under the current IR35 legislation, the responsibility to assess IR35 status and arrange for payment of tax and National Insurance on invoices lies with the contractor and their Personal Service Company (PSC). This leaves no obligations with the engaging Company and invoices can be paid gross through an accounts payable function as with any other business to business relationship.
Looking forward to the 2021 changes, this will see the majority of responsibility move from the contractor and their PSC up the chain to the engaging company and the party who ultimately benefits from the services of the contractor. As part of this, it is vital that supply chains are reviewed with the relevant parties identified to ensure each is aware of their responsibility and to ensure that all requirements under the new legislation are met.
It has however been confirmed that these changes will only apply to medium and large sized businesses from April 2021, with businesses who meet the Companies Act 2006 criteria of “small” remaining subject to the current rules whereby determining the IR35 position sits with the individual contractor and their PSC. It is not expected that this will be the position indefinitely though, with the rules to be phased in across all businesses in the coming years.
The key actions which will be required for each contractor at the point they are engaged and at the point their contract or working arrangements change are as follows;
- Completion of assessment with inside / outside IR35 result arrived at and contractor notified
- Review of current day rates and renegotiations held with contractor and clients to maintain profit margin for engaging Company
- Agree new contracts
- Operation of tax and National Insurance on invoice payments and payment of liabilities directly to HMRC where appropriate
Reflecting on the run up to the original implementation date of April 2020, many businesses were in denial that the changes would go ahead and as the date got closer, reality began to set in resulting in a substantial amount of work required in a very short window. While there has been talks of further delay to this legislation, in recent months MPs voted against any further delay to 2023/24 with the Government also widely stating that they cannot delay the changes any further. It really is now “full steam ahead” once again for IR35 off-payroll reform, and businesses must start preparing now to go live in April 2021.
Should you require any support with these changes and how they will impact your business, please do not hesitate to visit our dedicated IR35 page for more information or get in touch with one of our specialist IR35 team by emailing IR35@aab.uk.