For the last 10 years, the government have taken various steps to improve the effectiveness of the IR35 rules, with limited success. In April 2017 the government reformed the public sector rules which meant the responsibility to determine employment status changed from the contractor to the organisation whom they engaged with. This was put in place to increase compliance with the existing rules and not introduce a new tax liability.
The government recognised that shifting responsibility is a major change and from April 2020 the reform would extend the changes to medium and large organisations in the private sector.
Throughout the review process, the government have listened and is making a number of changes to address concerns and support a successful transition.
- Customer will not have to pay penalties for errors relating to off-payroll in the first year, unless the non-compliance is deemed deliberate.
- HMRC have confirmed that previous commitment to not investigate into personal service companies for tax years prior to 6th April 2020 unless there is reason to suspect fraud or criminal behaviour.
- In response to feedback from the roundtables that an immediate change would be beneficial, the government has already announced that the rules will only apply to services carried out from 6th April 2020 onwards.
- Legal obligations will apply to clients to respond to requests for information about the size from the agency or worker, and update the legislation to address concerns over the rules as they apply to offshore companies.
- HMRC have already published guidance on the reform and clarified the position on a range of concerns raised. The employment status manual guidance has been updated in line with the outcome from the review.
- HMRC have already published a fact sheet to support contractors to prepare for the changes and will be providing additional products such as a self-help guide on how to spit tax avoidance schemes.
HMRC will commission external research into the impact of the reform six months after implementation.
Tax year 2020-21 HMRC will deliver a supportive approach by introducing
- one-to-one education discussions with large businesses and agencies.
- Webinars to support businesses affected
- Working with specific sectors to identify any particular areas of difficulty and then further target support.
- Checking the education and support is effective. When errors are identified HMRC will help customers to correct them to pay the tax and NI contributions that are due and ensure status determinations are correct going forward.
For advice and support on the reform and how the conclusion will affect your business and contractors please contact us on 01252 863700.