Andrew Brookes – IR35 Specialist
DD: +44 (0)1252 541244
On the 17th March Chief Secretary to the Treasury, Stephen Barclay, announced that the changes to IR35, scheduled for less than three weeks’ time, are to be postponed for twelve months because of the economic impact of Covid-19. He emphasised “postponed” rather than “cancelled” and businesses should regard this as additional time to prepare rather than a permanent reprieve.
What are the important points?
IR35 only applies to those working through an intermediary, usually a personal service company (PSC), it does not apply to contractors engaged directly on a self-employed basis. For sole trader contractors, businesses must still assess the arrangements and then apply PAYE where the relationship is indicative of employment. This problem is pre-existing and has not gone away.
Office holders are usually caught for PAYE or IR35 automatically. Businesses should not feel they are exempt from risk in these situations for another year because HMRC could argue that the individual was acting for the end client when structuring their arrangements in this way. Consequently, the business remains at risk if the individual and their PSC do not apply the rules correctly.
Clearly, regardless of whether it is the engaging business or the individual that is at risk of IR35, it is key to ensure that off-payroll contracts and working relationships support a business to business self-employment arrangement and the key elements are:
Substitution
Does the individual have to do the work personally or can they pay someone else to do this? The current environment may see contractors needing to send others to fulfil their contracts if they are, for example, self-isolating because they will not want to risk losing the contract. This is substitution and where this is genuine, IR35 cannot apply.
Control
Who decides the what, when, where, how, etc. for the completion of the work? Is the individual solely responsible for pre-agreed deliverables, or are they subjected to supervision, direction or control?
Financial
Does the PSC look like a self-contained independent business with the opportunity to boost profitability from its own efficiencies, while at financial risk in the event of sub-standard delivery or failure to win contracts?
Latest news on IR35 –
Information correct as of 18th March 2020
The Government has announced it is delaying the reforms to the off-payroll working rules (IR35) from 6 April 2020 to 6 April 2021. This is to help businesses and individuals deal with the economic impacts of the Coronavirus pandemic. To confirm this is a deferral of the introduction of the reforms, not a cancellation.
The Government remains committed to introducing this policy to ensure that people working like employees, but through their own limited company, pay broadly the same tax as individuals who are employed directly.
This deferral means that the current off-payroll working rules in the public sector, introduced in 2017 will continue to operate as they do now. Public authorities will not need to implement the changes on status determination statements or implement status disagreement processes until April 2021.
Source: HMRC Policy Advisor
What does this all mean?
The current Coronavirus (COVID-19) crisis will change the contracting landscape going forwards. There are many businesses seeing the advantages of a flexible workforce and the opportunity to cut this loose when demand falls away. On the other hand, contractors are now extremely worried about their income because many assumed the work would always continue to flow and they have taken no action to prepare for loss of work and an inability to win new contracts.
This may see a greater desire for off-payroll contractors moving forwards together with a desire for employment form contractors seeking greater security in the future. No doubt market rates will change based on the new supply and demand. There is certainly a place for off-payroll contractors in the marketplace, but these arrangements must be structured effectively.
It is important that businesses use this time wisely and that they do not sit on their hands hoping that the issue will disappear altogether.
Menzies can help you with these difficult issues to ensure you put in place the right arrangements for the success of your business.