HMRC has issued a series of guidance notes today (22 August 2019) for end users and others about what they need to do to comply with the private (and revised public) sector IR35 regime due to come into force on 6 April 2020.
This guidance is important because when the draft legislation was published in July, HMRC effectively acknowledged that the legislation did not yet make clear when end users would be liable, and that this be made clearer in guidance. We now have some guidance.
Read our last briefing on the UK government proposals for new IR35 legislation published on 11 July 2019 here.
What are the key points to note from today's announcement?
- Despite rumours that IR35 might be postponed given concerns about alleged flaws in the proposed regime and whether businesses and HMRC will be ready, HMRC seem to be pressing on.
- It is made clear that if someone in a supply chain fails to pass on a status determination then they become the "fee payer" primarily liable for the IR35 payments.
- HMRC make clear the need for all businesses to have processes in place to make status determinations and deal with challenges and keep records of all decisions.
- The guidance confirms that a worker who disagrees with a status determination has a right to say they disagree and to be given reasons but no right to refer the matter to any form of independent reviewer.
- The guidance confirms (as was implicit from the draft legislation but not expressly set out in that) that the status determination needs to be given by the end user before the contract is entered into or (if later) before work starts. If this deadline is missed, the end user is liable presumably until the determination is given.
And what does the guidance issued today not yet clarify?
The guidance for staffing companies says that where there is a chain of intermediaries, liability may transfer back up the chain if HMRC cannot collect any outstanding tax or NICs from parties below them in the chain, for example, the fee-payer. The draft legislation and comments issued in July already made that clear. However HMRC stated on 11 July 2019 (on page 14 of the Summary of Responses to the March 2019 consultation) that there might be circumstances where HMRC would not go after end users, such as where their staffing company supply chain has tried to comply, but has become insolvent and so been unable to make a relevant tax or NICs payment.
HMRC stated that future guidance would make clear when liability would and would not transfer up to end users in circumstances where the supply chain fails to pay. Today's guidance does not yet clarify this so far as we can see. This is a crucial issue.
There is still no real guidance about the implications of the obligation of the end user to take reasonable care to make correct status determinations. Clearly where reasonable care is not taken in an "outside IR35 determination" and the determination is incorrect, then one can see how a staffing company might rely on that in good faith and pay "outside". Clearly, the end user might be liable for the relevant tax and NICs in that situation. But what if a blanket determination of "inside" is made without taking reasonable care? What if the staffing company chooses to ignore that and pays "outside"? Is the end user liable if in fact the determination should have been "inside" but was just not carried out with reasonable care? And of course everyone involved would like more guidance generally as to what "reasonable care" means in this context.
The CEST tool has not yet been updated. Some commentators believe no substantive changes will be made to it and so it will continue not to deliver reliable assessments for a large range of contracting situations. As a result, we are aware of a large number of staffing companies and end users looking to develop their own assessment tools, or to partner with others who can offer a professional status checking services.
Please let us know if you would like to discuss any IR35 issues. We have now carried out 135 fixed-price workshops for staffing companies, consultancies and end users affected by the proposed measures, and are helping many in the supply chain develop options to minimise the impact of the legislation.