Yesterday, the government released the consultation and policy document for the proposed IR35 reforms which deal with medium and large businesses in the private sector. These rules are expected to come in effect next year, from 6th April 2020.
Thanks to this document, a lot of questions have been answered on IR35 implementation. On the flip side, there is no clear information for the unification of the employee rights framework and employment status tax in the aftermath of the Good Work Plan.
However, the government ensured that CEST (Check Employment Status for Tax) will be improved and made available before the final implementation.
The released document has verified that the rules are based on the public sector reform—which came to effect on 6th April 2017—but there are crucial modifications in the new reform. These modifications revolve around explaining the responsibilities of a business that is receiving a worker’s services as well as those parties who operate in the supply chain.
The new rules will affect those businesses that work with off-payroll contractors and use intermediaries like PSC (Personal Service Companies). It also includes recruitment companies in the supply chain who are known to use these types of workers.
Right now, these businesses have only 13 months to prepare for the impending legislation; therefore they have to act fast. In 2000, the IR35 regulations were initially proposed. At that time, it was used to ensure that if a worker is working similar to an employee while using an intermediary like PSC, then such a worker has to pay tax and NIC like a regular employee does.
However, the IR35 regulations were ineffectual for the most part because ultimately the PSC had to self-assess on how the rules were to apply. According to HMRC, the non-compliance stood at a large scale as they could not tackle it properly. As a consequence, without further reforms, they were well-poised to lose around £1.3bn till 2024.
The new reform is going to assign the responsibility to determine whether IR35 can be exerted on the end user who benefits from the services of the workers, only when medium and large businesses are involved. Here, the end user will have to evaluate if the IR35 can be applied. The relevant fee payer party is obliged to do all the accounting work along with the payment for the tax and NIC.