In this year’s spring consultation, an announcement was made regarding the new legislation which will be introduced and effective from 6th April 2020. IR35 will require businesses to operate PAYE and NIC where they engage with workers through limited companies and that the worker would otherwise be considered an employee. If the worker is employed by a recruitment agency, the responsibility for PAYE and NIC will fall on the agency itself.
Since April 2017, IR35 came into force across the Public sector and is now soon to broaden its horizons across the Private sector too. There have been some changes and exemptions during the confusing transition, one of which where the engaging business is labelled as a “small business”.
Small Business Exemption
This exemption uses the existing tests for incorporated businesses which use a combination of annual turnover, balance sheet and the number of employees. For unincorporated businesses, only the annual turnover test will apply but it will be by reference to a single accounting year rather than the two-year test for incorporated businesses.
For both incorporated and unincorporated businesses that cease to be small during an accounting period, the off-payroll working legislation will apply with effect from the start of the next tax year.
What support is being offered to businesses?
Many businesses seem to be uncertain of the misty waters around IR35. As a result of this, HMRC have said they are soon to publish a guidance document which is targeted to provide industry-specific support. Furthermore, HMRC are conveying a new and improved Check Employment Status for Tax (CEST) tool, following negative feedback on the current one from taxpayers and advisors.
Who is responsible?
The responsibility lies on the end business which must inform both the party they are engaging with and the worker of their decision whether or not an employment would be deemed: the current 31-day time limit for public sector engagements will apply. If there is a labour supply chain involved, the determination must be passed down each stage of the chain. This includes the umbrella payroll company who may contract directly with each worker.
What rights do workers have?
Workers have the right to appeal the decision made by the engager should they choose not to agree with a determination that employment would apply. This has to be done in writing and the engager must respond within a 45-day timeframe stating the reasons for the change of employment status.
How the dispute will be resolved will be a matter for guidance to be published by HMRC (although it will not get involved in such disputes) but it should be noted that this right of appeal will apply to individuals working for public sector engagers as well as private sector businesses from April 2020.
Who would liable for potential debts?
Where a worker is provided through a labour supply chain and obligation to operate PAYE and NIC arises but an intermediary fails to operate them, the first intermediary who engages with the end client will be liable for the debt. The Government has stated that HMRC will only use those powers in the cases of deliberate default or structured tax avoidance and guidance will be published to provide more clarity on where HMRC will use these powers.
With the legislation soon to be in full swing, businesses need to review and engage this significant change and look at how they will associate with off-payroll labour. If you have any questions or require any further information please give us a call on 01923 277900 or email us at firstname.lastname@example.org