IR35: The Second Coming
It seems like a distant memory IR35 which was due to go live in April 2020 but thankfully with the at the time pending crisis it was delayed. It was always only on ice rather than scrapped and it would appear from recent news that IR35 is very much set to go live in 2021 and probably based on the noises and news coming from HMRC April 2021.
It is fair to say that many professionals do see IR35 as one of many tools that HMRC will have to use. Given the extent of the borrowing that the government has committed to over the last 6 months in order to sustain the economy it is not unreasonable to see why IR35 might become a tool. At the end of the day the Treasury will be looking for every opportunity to raise funds, and non-compliance with IR35 could be one weapon in its arsenal.
The IR35 rules require that employment taxes be paid by people who provide services to a business through intermediary, usually a personal service company (PSC), if that person would otherwise have been regarded as an employee of the engaging business. Currently where a private sector business engages a contractor through a PSC (regardless of whether it is via an agency or not), liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC.
The rules will change on 6th April 2021. From this date, engaging businesses will be made liable for determining whether IR35 rules apply unless you are classified as a small business. Under the new rules, businesses will be required to provide a statement determining the employment tax status of contractors working through PSC’s directly to the contractor, including reasons for determination. Businesses will be able to use HMRC’s Check Employment Status for Tax (CEST) tool to establish whether a contractor would be considered to be an employee for tax purposes.
HMRC has confirmed its commitment to the determination made under CEST providing the information used has not changed and is accurate. Businesses are being encouraged as part of best practice and in preparation for IR35 to use the CEST tool now.
IR35 will play a big part in the changing landscape of the temporary workforce and at Chase & Holland we believe preparation for this should be now not April 2021.