The draft legislation which will make the off-payroll private sector IR35 rules law in April 2020 has been published today. With few amendments made, it disregards the concerns expressed by respondents to the recent consultation.
The draft 2019-20 Finance Bill documents were published online today – including a policy paper: ‘Rules for off-payroll working from April 2020’ – which outlines how the existing off-payroll rules will be extended to private sector organisations. The text of the draft legislation and an explanatory note have also been uploaded.
In April 2017, the Government introduced the ‘off-payroll’ rules to public sector organisations – who are now responsible for determining the IR35 status of contractors, rather than the contractors themselves. Claiming that £550m of additional taxes were raised as a result of this new measure within the first 12 months, at the Autumn 2018 Budget the Government announced that the off-payroll rules would be extended to private sector businesses from April 2020 onwards.
The measure will not apply to ‘small organisations’ (as per the Companies Act definition), however the largest users of contractors will be included within its scope.
The 5% IR35 administration allowance will be withdrawn from contractors affected by the measure.
Two consultations on the private sector extension were carried out – today’s draft legislation was published just weeks after the second consultation into the measure concluded.
Main concerns raised during the consultation
The most prominent points made by respondents to the second consultation include:
- Need to postpone the introduction of the measure to enable the industry time to prepare adequately.
- The CEST (employment status) tool is not fit for purpose and needs a radical overhaul, well in advance of April 2020.
- An independent process needs to be set up to help resolve employment status disagreements.
- Need for clarity over which party in the chain is liable for any tax liabilities, and how parties in the chain communicate.
- Various potential problems (and avoidance activity) may occur to the small company exemption
- What is the ‘definition’ of reasonable care? So that clients cover themselves against potential liabilities.
Points of interest from the draft legislation
Perhaps unsurprisingly, the Government has ignored all of these concerns, and as things stand, the off-payroll extension will go ahead in April 2020, with only minor amandments.
Instead of the independent process demanded by respondents to the consultation, the draft legislation states that a new ‘client-led status disagreement process’ will be introduced to deal with instances where the ‘worker’ disagrees with the client’s employment status decision. See section 13 here.
The policy paper states that the measure “is expected to impact 170,000 individuals working through their own company, who would be employed if engaged directly.”
A point which is likely to provoke many – the paper states that “there will be on-going savings for around 230,000 PSCs who will no longer have the requirement for determining status or associated accounting burdens.”
HMRC has also indicated that further guidance will be provided on what constitutes ‘reasonable care’ – one of the most frequently cited issues by respondents to the second consultation (above).