The government has released the findings of its IR35 review and confirmed that the reforms will go ahead on 6 April as planned.
From 6 April, contractors who have been working under personal service companies will have to either enter employment under PAYE or potentially move to umbrella company intermediaries. Some larger firms have already been making ‘blanket’ determinations on contractor status to bring them into PAYE. The change of status will not, however, confer employment rights.
Despite calls to delay implementing the changes for a year, or to at least consider making some major adjustments to the legislation, the month-long review has clarified some minor issues and confirms that offshore companies with no UK presence will be exempted from the changes. The Chancellor, Rishi Sunak, appears to have wrung some concessions from HMRC:
- HMRC will now pursue a ‘light handed’ approach during the initial year of implementation and only impose penalties where they perceive clear cases of attempted tax evasion or other abuses. This is a turnaround from their previous position.
- Information resulting from the IR35 rules changes will not be used by HMRC to open investigations into personal service companies operating in the tax years before 6 April 2020, unless there is reason to suppose fraud or criminal behaviour.
- The rules will also not operate retrospectively and will apply only to services carried out from 6 April 2020.
There are additional requirements for client companies to respond to information requests from agencies or workers and clarification on the process for status disagreements. HMRC has also committed to continuing its dedicated team and communications to contractors and large and medium employers affected. It has also published a guide for contractors and those working through agencies to help them avoid using non-compliant working arrangements.
With the changes only just around the corner, the publication of the report has done little to allay concerns on the disruptive and detrimental effects of the reforms for business and contractors alike. There are still some detailed questions to be answered and, as firms review their policies and projects, fears from many contractors that they will be left without work.
If you are a contractor trying to work out the best way forward, or a business getting to grips with the implications for your firm, taking expert advice should help ensure you can minimise the impact.