With less than a year until IR35 reform arrives in the private sector, companies must begin to think about dusting off those IR35 project plans and get to work in ensuring compliance before 6th April 2021.
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.
On 7 January 2020 the Chancellor, Sajid Javid, announced that the Government will carry out a review of the off-payroll reform, known as IR35, which is due to come in to affect in April 2020.
As part of the review, the Government will be working with stakeholders representative of those affected by the reform, including contactor groups and medium and large sized businesses via a series of roundtables. The aim of the review is to identify and determine if any further steps can be taken to ensure the smooth and successful implementation of the off-payroll reform. In addition to the review, the Government is expected to carry out internal analysis, including re-evaluation of the enhanced Check Employment Status for Tax (CEST) tool as well as revisiting public sector bodies’ experience of implementing the reform to the off-payroll working rules in 2017.
It is anticipated that the review will be concluded by mid-February with the view that the off-payrolling changes will still be implemented in April 2020, following the scheduled UK Budget announcement on 11 March 2020. Although it is doubtful that the reform will be scrapped, it is possible that the review will take longer than anticipated and potentially the date of implementation could be postponed. However, this is not a certainty. Therefore, it is important that businesses continue to prepare for the off-payroll changes to be implemented in April 2020, ensuring compliance with the changing legislation.
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.
For any further information on IR35 or the ongoing review, please contact Charlotte Edwards (firstname.lastname@example.org) or your usual AAB contact.
HMRC have made almost 40 updates to their Check Employment Status for Tax (CEST) tool this month to make it ‘clearer, reduce user error and consider more detailed information’ by including and making changes to around 30 questions. HMRC have announced that they will uphold a result the tool provides; as long as the information input into the tool is accurate, and that it is the only tool they will do this for. Consequently, this has left many businesses thinking that they need to use CEST in order for HMRC to stand by the outcome.