Delayed IR35 changes to be implemented in April
Delayed IR35 changes to be implemented in April
Controversial changes to IR35 ‘off-payroll’ tax regulations are finally to go ahead on 6 April 2021, after being postponed due to the impact of the coronavirus pandemic on businesses. However, a survey undertaken at the beginning of 2021 showed that over half of firms that use contractors have yet to start preparing for the changes.
IR35 rules apply to contractors who offer their services to their clients through a limited company or another type of intermediary, such as a partnership, personal service company or individual. For more information on what is changing, why, and who will be affected, we invite you to refer to a blog we wrote last year when it was first announced that the changes would be delayed.
Lack of preparation revealed
The survey, undertaken by assessment software firm IR35 Shield, also revealed that 52% of in-work contractors have not yet been assessed for IR35 by their employer. In addition, fear of non-compliance and hefty sanctions have led 23% of survey respondents to report that their client has imposed a blanket ban on limited company contractors, rather than take the risk.
In a blow for the contracting profession, the survey results also reveal that 57% of contractors are likely to leave their client after April due to the changes.
Criticism of HMRC’s ‘heavy handed’ approach
A new IR35 enforcement paper from HMRC, published in February 2021, has been met with criticism and branded a scare tactic by IR35 advisers. Although the document commits to suspending penalties for inaccuracies relating to the new rules for 12 months (unless there is evidence of deliberate non-compliance) to allow for a smoother transition, advisers believe this reassurance is counterbalanced by ‘heavy-handed’ approach. Just months ahead of the changes, the paper provides details of how the changes will be enforced, meaning that unprepared firms have just months to get ready.
- Any organisation, anywhere in the supply chain, can be reported to HMRC by anybody for ‘suspected IR35 non-compliance’, whether it is accidental or deliberate.
- A specialist HMRC team will be created to actively monitor compliance.
- Organisations must have an IR35 team or designated person to talk, present documents and processes, and demonstrate to HMRC that ‘reasonable care’ has been taken to comply with the rules.
One adviser commented that it was “clearly designed to scare”, adding that “it’s a very scary read for anyone not yet aware or not doing anything about the new rules.”
So, how do you prepare?
There are a few simple steps businesses can take to ensure they don’t fall foul of the new rules:
- Identify contractors who may fall within IR35
First, you should review your workforce to identify any contractors who may potentially fall within the scope of IR35.
- Assess their status
HMRC has an online tool that employers can use to identify their contractors’ IR35 status, called Check Employment Status for Tax (CEST). You don’t have to use this tool, but it is recommended because HMRC is bound honour to the outcome as long as it is accurately completed and regularly updated.
- Consider the additional costs
If a contractor’s status outcome is ‘deemed employment’, then you as their employer will be responsible for paying National Insurance and pension contributions, so it’s important to plan to factor in these costs and how you will meet them.
- Review your contracts
Review your contracts to ensure protection against negative IR35 outcomes. A well-worded employment agreement that clearly demonstrates that IR35 should not apply (for example providing that the business should have the right to substitute the contractor for another, or that the contractor is engaged for the provision of specific deliverables) is a good place to start.
- Consult the experts
IR35 is a highly complex piece of legislation, so it’s hardly surprising that parties on both sides of the employment fence are concerned. Whether you’re a contractor or an employer, we’re on hand to help you prepare for a smooth transition. Contact our Employment Law specialist, Ahmet Ozcan on 0203 871 9254 or email him at ahmet.ozcan@attwaters.co.uk.
Sources:
https://www.personneltoday.com/hr/half-of-firms-yet-to-prepare-for-ir35-changes/
https://www.natlawreview.com/article/four-simple-steps-to-prepare-ir35
