AAB: plan now for next year’s IR35 off-payroll tax change
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 6 April, 2021.
There has been much talk that the reforms may be delayed further, but a tabled amendment to the Finance Bill proposing a further two-year delay to the legislation’s implementation failed to gain the support needed in the Commons, meaning we are one step closer to the changes becoming law in 2021.That being said, the Finance Bill will be considered several more times ahead of Royal Assent, but there has been little to suggest that the reform will be postponed again.In late May, Jesse Norman, Financial Secretary to the Treasury, was keen to make this clear in his response to the proposed amendment, stating: “It is hard to see any genuine rationale for this further delay”.The changes, which would see every medium and large private sector business in the UK become responsible for setting the tax status of any contract worker, were originally set to take effect this April, but the move was delayed by government until next year in light of the coronavirus crisis.Currently, off-payroll rules only apply to the public sector, but the Treasury has always maintained reform is necessary to address “fundamental unfairness” surrounding non-compliance, despite widespread calls for the changes to be scrapped altogether.In April, a Lords select committee urged the government to “completely rethink” the IR35 rules in a damning report which found the changes would put too great a burden on businesses and was unfair to contractors – effectively forcing them into “zero-rights employment”.The report found the support offered by HMRC fell “well short” of what was required, adding that large and medium-sized firms were being made responsible for enforcing a regime HMRC had “struggled with for 20 years”.To blanket or not to blanketOf course, the disregard of the select committee report will be disheartening for those calling for a complete overhaul of the proposed changes, but while Jesse Norman is determined to introduce the reform next year, to address what he described as the “intrinsic unfairness of taxing two people differently for the same work”, there was some hope for contractors subject to blanket IR35 determinations.When discussing the issue of companies forcing all contractors inside IR35, Norman said: “The government has been very clear that determinations must be based on an individual’s contractual terms and actual working arrangements.”Referencing that “actual working arrangements” must be considered not only indicates that blanket decisions are non-compliant – as many have been arguing from the outset of the proposed changes, given the contradiction with the requirement to take reasonable care – but it also makes a stronger argument for case-by-case determinations, rather than role-based assessments.While contractual terms may be– and often are – identical, actual working practices cannot be grouped together as they are completely individual to the contractor.Whether this was an error in expression by Norman or a glimpse into HMRC’s plans to address the issue of blanket and role-based decisions in future remains to be seen, especially considering HMRC’s website still states that blanket assessments “may be permissible in some circumstances”.However, for companies preparing to restart the process of determining their contractor workforce’s IR35 status, HMRC emphasises the importance of making individual assessments that examine the contract and reality of the worker’s day-to-day engagement, and ensuring that the time required to do this is built into their IR35 project plans.Charlotte Edwards is a global employment taxes senior manager and head of IR35 at Anderson Anderson & Brown