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Markel Tax

29 Nov 2018

IR35 consultation response release by HMRC

As mentioned in the Budget, the changes to IR35 will see the public sector legislation rolled out into the private sector, albeit the contracting industry has been given a reprieve until 2020 and it will not be a direct copy and paste onto the private sector. End-clients, agencies and PSCs now have 14 months to get their houses in order. 

As we have always said at Markel Tax, the devil is in the detail and we must wait for the finer details of the legislation before any firm analysis can be given. However, shortly and quietly, after the Budget announcement the government published online the responses to the IR35 consultation and proposals moving forward which could give us an idea of how these reforms may shape up.

Within the consultation response we see some indication of the government’s changes prior to roll out:

1.    It will only apply to larger engagers

This was briefly touched upon by Mr Hammond, and within the consultation response the government has stated:

“Small businesses will not need to consider the employment status or deduct employment taxes from the fees of people they engage in this way…The government intends to use similar criteria to define small businesses as is found in the Companies Act 2006”.

While the use of the word “similar” is noted, the current definition within the Companies Act 2006 defines a small business as one which can satisfy two of the following during the year:

i) turnover of not more than £10.2m
ii) balance sheet total of not more than £5.2m
iii) has no more than 50 employees

The government contends “As a result, over 95% of businesses will not need to apply the reform” and the decision and payment will remain with the PSCs. 

We are not as certain as the government that, even if the Companies Act definition is used verbatim, the reforms will only apply to fewer than 5% of businesses.

2.    No blanket decisions

In response to the criticisms of the public sector legislation in respect of end-clients making blanket decisions and leaving the PSC with no right of appeal against this decision, the government has stated within its response:

“The government intends to further explore options for the consequences of businesses failing to use reasonable care in making their decisions”.

As well as a commitment HMRC will publish further guidance to help understanding, they say “HMRC will also set out what people should do when they do not agree with the business’ decision on their employment status”.

We remain hopeful that the government will enforce this by legislative underpinning to provide a statutory right of appeal to PSCs.

3.    Enhancement to CEST and improved guidance

Many respondents were critical of HMRC’s CEST tool and current guidance, in response the government has stated “HMRC is looking at where the CEST tool, along with wider guidance might be improved”. They continue by saying, in respect of the CEST tool, it will include “saying more about mutuality of obligation”.

We remain somewhat sceptical as to how improved the Check Employment Status for Tax (CEST) tool and guidance will be and can only hope that a concerted effort is made on behalf of HMRC to bring its guidance more closely aligned with case law.

The consultation response confirms that the government will be conducting further consultation, to explore the details and practicalities of the proposed private sector alterations, prior to publication of the draft finance bill legislation in summer 2019. 
   
Within the consultation response it is also of note that the government did not provide commentary on the questions raised by respondents in respect of its consultation on employment status other than to say the response to that consultation will be published in “due course”. We expect to see this published in the next couple of months.

While many engagers and PSCs will breathe a sigh of relief that the private sector roll out has been pushed backed to 2020 we would air a word of caution to all PSCs and engagers not to rest on their laurels. As this has been postponed until 2020 it is likely that when the legislation does take effect there will be no soft-landing as the government will consider the industry has had sufficient time to get their house in order.

As with the public sector legislation, this legislation will not change the tests applied for determining IR35 status, and therefore if your engagement falls within IR35 currently then it will still be within IR35 after the reforms (and likewise if it does not, it should not after the reforms). We would encourage every PSC, agency and end-client to start the process now of working more closely to examine written contracts and working practices to ensure a smooth transition in 2020…and the final word for PSCs currently contracting in the private sector, HMRC will continue to look at IR35 under the current regime so the onus remains on you to determine your IR35 position. 

If you or your clients would like any further advice on IR35 and potential impact of the new reforms please contact us at Markel Tax on 0345 066 0035 or by email at taxcontractorsolutionsuk@markel.com.
Tagged IR35
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29 Nov 2018

R&D restrictions for loss-making companies from April 2020

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