UK Government has published its final proposals and draft legislation for reforming the off-payroll working rules.
HM Revenue & Customs (HMRC) has confirmed that the reforms will continue to apply to public sector bodies and will also apply to large and medium sized clients in the private and third sectors (essentially the voluntary sector):
Clients will fall within the scope of the new regime from 6 April 2020 or with effect from the start of the first tax year following the filing date at which they cease to qualify as ‘small’ under the relevant test.
The existing IR35 rules will continue to apply where the client organisation is ‘small’ (as defined by the relevant test).
Clients (the organisation that the worker is personally providing services to) will be required to pass their status determination and supporting reasons for their conclusions to both the first party they contract with in the labour supply chain and the worker.
The Government intends to legislate such that the liability for any unpaid PAYE and NIC transfers to the party in the supply chain closest to the client and, if necessary, ultimately to the client itself.
However, the Government recognises that in certain circumstances (e.g. in the event of a genuine business failure in the supply chain) it would not be appropriate for HMRC to pursue unpaid liabilities in this manner. HMRC will issue guidance on this to clarify what steps clients need to take to demonstrate that they have exercised ‘reasonable care’.
This easement is welcome, but we will be asking for this to be enshrined in legislation to provide greater certainty to clients.
The client will need to provide a status determination statement to the fee payer and worker together with an explanation of that determination. Interestingly, the Government proposes that the client will be liable for the relevant PAYE and NIC until it has provided the status determination and, whilst there is no timescale for the fee-payer or worker to challenge the determination, if and when this does happen, the client must respond within 45 days confirming that the position has been reviewed and the outcome of that review.
HMRC will publish guidance on how clients can take ‘reasonable care’ to arrive at status determinations and how the status dispute process could operate.
Additionally, HMRC has confirmed that it will not carry out targeted reviews of the compliance position in prior years where an engagement is assessed to be within IR35 for the first time from April 2020 (but this is not a commitment from HMRC that there is an amnesty on incorrect status determinations by personal service companies for tax years prior to 2020/21).
HMRC will issue further guidance on the new regime in the coming months and roll out targeted communications to raise awareness of the new regime.
Information provided confirms that an enhanced online Check Employment Status Tool (‘CEST’) will be made available before the end of 2019. However, at this stage it is unclear what changes will be made, particularly in terms of addressing points arising in recent cases that have come before the courts in which taxpayers have been successful in arguing that IR35 does not apply.
The proposal to facilitate fee-payers making contributions to workers’ private pensions will not be pursued. Whilst well intentioned, we agree with the Government’s assessment that this proposal would be difficult to operate in practice and that take up would be limited.
Organisations should work to identify workers affected by the new rules and assess the impact on their contingent labour arrangements, including the implications for current arrangements with contractors and agencies.
Once current workers have been identified, robust processes will need to be introduced to determine their status under IR35 and manage information flows in the labour supply chain.
KPMG have developed technology to support clients in complying with the new rules, including:
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