Summary of response to IR35 Consultation

Please note: this blog was written before the IR35 implementation date was delayed to April 2021, however the information contained in this blog is still relevant and helpful.

In March 2019 HMRC released their consultation into Off-payroll working rules from April 2020. This consultation gave End Clients, Agencies, Contractors and Professional Bodies the opportunity to provide their views on the proposed changes including:

• The scope of the reform and impact on non-corporate engagers
• Information requirements for engagers, fee-payers and personal service companies
• Addressing status determination disagreements.

As part of the SThree group of companies we have responded to the consultation, and have put together a summary of our response below.

Small Company Exemption

Progressive’s stance on the small company exemption is that, as it currently stands, it will make the reforms more complicated and lead to confusion when applying the reforms.

If HMRC wish to push forward with this exemption then as part of our response we listed the areas where the industry will require additional clarification:

• Tax year applicable to the exemption determination
• Who has responsibility and liability for determining if the small business exemption applies
• What proof is required to prove small business status, e.g. accounts
• What is the trigger for small business status reassessment?

Passing determination down the supply chain

As part of the response to these questions Progressive has emphasised the need for the End Client to pass on the reasoning behind the determination as well as the determination. As part of the legislation HMRC should set out a statutory format for the determination and reasoning.

Progressive stressed the importance of including an indicator of an assignment’s IR35 status as part of the job specification, as this will prevent disputes arising at a later stage.

HMRC’s proposal will require a robust supply chain to ensure that the information does flow down in time, and that End Clients have a handover procedure in place if the person responsible for IR35 is out of the business.

Appeals Process

HMRC have proposed a client led appeals process but we are concerned about this process being client led. HMRC must be involved in this part of the process, ideally to provide a decision on the determination or, at a minimum, to provide guidance. A client led process will vary hugely in quality and effectiveness depending on factors including their efficiency, intentions and internal expertise.

Other issues

A significant issue that HMRC have not addressed in this consultation is the CEST tool – the most common way of getting determinations. We are aware that HMRC are currently looking at this tool and how to improve it and we have been asked to be involved in the testing. We hope that HMRC will make the updated tool available soon, so that End Clients and Workers have sufficient time to get used to it before the reforms are rolled out.

Next steps

• HMRC will now review all consultation responses
• The legislation will be released as part of the Finance Bill which is expected to be released in August/September 2019.

If you are an End Client we advise carrying out the below steps:

• Carry out an audit on the contractor population within the business
• Educate your business on the upcoming changes
• Carry out IR35 determinations on the contractors identified
• Ensure there is a clear communication plan in place
• Work with Progressive to support you through the changes.

If you are a contractor we advise carrying out the below steps:

• Familiarise yourself with the legislation
• Understand the financial and contractual impacts of each IR35 status determination
• Work with Progressive to support you through the changes.

Contact us for further information and to find out how we can support you. Please also view our free IR35 resources found here.

This document/article is for information purposes only, and should not be seen as providing legal or tax advice. SThree and its family of brands, advises clients and contractors to seek independent legal and/or tax advice, where required.