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Markel Tax

11 Jul 2019

IR35 draft legislation: first thoughts

The new draft IR35 legislation has been released today, here is a summary of the key points and our initial thoughts on them:
  • Small end-clients outside of scope
  • New Status determination Statement
  • New Client led disagreement process  
The draft legislation amends the existing public sector legislation in respect of IR35. The new provisions will apply to public sector bodies  as well as medium or large businesses in both the private and third sectors.
 
For PSCs in the private sector, where the end-client business is a small company as defined by the Companies Act, the new legislation will not apply, meaning it will be IR35 business as usual.  Section 382(3) of companies Act 2006 currently provides:
 
The qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements:
Turnover of no more than £10.2 million
Balance sheet total of no more than £5.1 million
Number of employees of no more than 50
 
Also be aware that HMRC have included provisions for anti-avoidance by ensuring that subsidiaries cannot qualify as small company if they’re part of a group.
 
For supply chains in the private sector where the end-client business does not meet the small companies definition, the legislation will apply.  This is the same legislation that’s already in place for the public sector, but with two interesting amendments:
 
1. Status Determination Statement. The end client business must provide a statement confirming it has concluded whether IR35 applies or not to that specific engagement.  This statement must be provided to the PSC worker and the party who the end-client contracts with.  Until this has been provided, the end-client business will stand in the position of “fee payer” (responsibility for ensuring the correct tax and NI treatment) with all the potential liabilities to tax and NI.  Liability as fee payer then rests with the last party going down the chain to receive the Status Determination Statement.
 
2. Client-led disagreement process.  The legislation has introduced a mechanism for PSCs to appeal against an end-client decision.  The legislation imposes that if a worker or PSC provides representations that it disagrees with the status determination,  the end client has 45 days to respond, along with its reasoning, and confirm either its original decision was correct or provide a new status determination statement.  If the client fails to do this then,  again, they will stand as “fee-payer”.  It is not clear if a PSC would already be paid in advance of such an appeal, or whether entering such an appeal is accepting that the PSC will not be paid until the matter is resolved.  Moreover, there doesn’t seem to be any teeth within the legislation to suggest that an engager might actually overturn their original decision.

The legislation also brings with it transfer of debt provisions if HMRC fail to recover monies from the “fee payer”.

Consultation on this legislation has now opened with the deadline of September 5 2019 and, as usual, we will be providing a response and will share this with our clients at the time.  For now, we will review the legislation and consultation overnight and provide an in-depth written critique tomorrow.

If you have any immediate concerns or questions please contact our expert team on 03450 660 035.
Tagged IR35
Next article in series

02 Jul 2019

IR35 Consultation: Our Response