On 17th March 2020 the Government announced that the reform to the IR35 off-payroll working rules, that would have applied for people contracting their services to large or medium-sized organisations outside the public sector, will be delayed for one year from 6 April 2020 until 6 April 2021.
This is part of additional support for businesses and individuals to deal with the economic impacts of COVID-19. As welcome as this delay is, it can be quite frustrating for some contractors, recruitment companies and end clients who have already made alternative arrangements to ensure compliance from 6 April 2020.
Deferred, not cancelled
This announcement 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.
According to member organisation APSCo, HMRC have verbally confirmed that Status Determination Statements (SDS) already issued by clients in the private sector have no legal effect, as the law requiring them is not yet in force. HMRC said they can be disregarded by the supply chain, including contractors, when making IR35 assessments (under Chapter 8 ITEPA 2003). HMRC said they will not take SDS issued to date into consideration if and when reviewing status decisions in the private sector made in respect of the period up to 6th April 2021.
Supply chain impact
The supply chain in the private sector can continue as normal for now, with contractors responsible and liable for their IR35 status. Contractors can disregard SDS issued by clients, although they are evidence of how the client views the assignment.
Contractors must understand that under the existing rules they have always been legally responsible for making the status determination on IR35 status by assignment and should continue to use HMRC’s employment status for tax tool (CEST) or take the advice of a third-party specialist to make the decision.
Many assignments commencing on or after 6th April 2020 will have had contractual paperwork issued in light of a client SDS decision. For example, if an SDS was issued as inside IR35, a contractor currently working through a limited company may have chosen to switch to being an umbrella company employee. Although it is important to speak to your clients and contractors in respect of these assignments, given the uncertainty in business and the economy due to Coronavirus it may be worth retaining the contractual paperwork as it is. A change in how the contractor provides their services will require a new set of contractual paperwork to be issued and possibly less security for the contractor.
Likewise, some clients particularly in the finance sector have issued variations stating that no Personal Service Company (PSC) contractors can be supplied to them and all contractors must be on the payroll. Immediate reversals of these decisions are not expected because, again, clients will be focusing on mitigating the impact of the Coronavirus. There may also be considerable costs in reversing the situation only to apply the same process again in 12 months time.
If you are concerned as to how this delay may impact you or have any questions around IR35 off-payroll reform, please contact Marie Pegram.
Alternatively, check out our series of blogs on IR35 or you can download our IR35 Off-Payroll Reform Guide for Recruitment Businesses.