In a consultation paper issued on 5 March, the second consultation on the IR35 changes, the government confirmed the intention is still to apply the IR35 reforms to the private sector in April 2020. In summary, the intention is for IR35 to apply to any individual who, but for the supply of their services through a personal service company or agency, would otherwise be an employee of the end user client in receipt of the service. The impact of the rules on medium and large businesses is that they, as the end user client, will be responsible for determining the employment status of contractors, whether they supply their services directly, through a personal service company or an agency. Under the current rules, contractors are required to self-declare whether they fall within the IR35 framework.
The Government has committed to reviewing the Check Employment Status for Tax tool (‘CEST’) the digital tool developed by HMRC to help public authorities determine employment status. HMRC is looking at where the CEST tool might be improved to help make employment status decisions. It is worth noting that there is a difference between employment status for tax purposes (and IR35) and employment status for employment rights and protections.
The draft legislation is awaited this summer which should offer some further clarity and certainty on the proposals. The consultation will close for comment on 28 May 2019.
In this post, we take a look at the actions medium and large private sector employers can take now in order to prepare for the changes.
- Understand your obligations
Whilst it is right there is a degree of uncertainty as to the details, now is the time for business to seek to understand what their obligations will be when the rules apply in April 2020. This will ensure businesses are in the best place possible to make decisions about the status determination of workers.
- Look at your work force
It is worth businesses carrying out a detailed assessment of their workforce to determine how many contractors they have that potentially fall within the remit of IR35. A starting point would be to check how many contractors are engaged through personal service companies and agencies to provide services to the business. Businesses should make sure they understand the supply chain involved as sometimes these can be complex involving many parties. It would seem that the reform is not intended to be retrospective however, it would not be a wasted task to understand the profile of the workforce and will help businesses to plan going forwards.
- Consider resources
In order to make employment status determinations, assessments will need to be made on a case by case basis and this is not a straight forward task. Businesses would be wise to consider how they will resource this task and what tools they will use to make the determination. Account will need to be taken of the individual working arrangements and so the larger the number of contractors are engaged, the greater the resources needed will be. This could easily become an administrative challenge.
- Start the conversation
There is value in business speaking to the agencies and consultancies they contract with now to understand how they too are planning for the implementation of IR35 into the private sector. It will be important that all those in the supply chain understand and deliver under their respective obligations.
It would not be advisable to wait until the outcome of the consultation or the publishing of the draft legislation before business take steps to prepare. If you need any assistance with your planning process, please get in touch.