Legal update: Draft legislation for private sector IR35 reform

On 11 July the government unveiled its draft Finance Bill 2019/20, which includes draft legislation for reform of the off-payroll working rules in the private sector. 

Despite widespread calls to delay the implementation, the reform is being rolled out and will apply to payments made on and after 6 April 2020.

The new rules will bring the private sector into line with the public sector, which has been working under similar rules since 2017.

The key points to note are:

  • Small companies will be exempt from the reforms. Instead, the existing IR35 rules will apply, ie. where intermediaries make their own status decisions and deductions. 
  • Small companies do not have any positive obligation to inform agencies that they are exempt from the rules.
  • Medium and large companies will be responsible for determining whether the contractors they hire fall within the scope of IR35 legislation and are liable to pay a higher rate of Income Tax and National Insurance Contributions (NICs). 
  • Clients must provide their Status Determination Statement (SDS) together with the reasons to the worker directly, as well as to the next party in the supply chain, of which there may be many. Each party must then in turn pass the status decision down the chain, and failure to comply with this obligation will render a party liable.
  • The client will be liable for tax and NICs where it fails to take reasonable care with the SDS. 
  • An agency that is next to the client in the supply chain will be liable where HMRC cannot recover monies due from the fee-payer, even where that agency has complied with its own obligations under the rules and regardless as to whether or not other parties down the supply chain have complied with theirs.  
  • Failure to pass the SDS down the supply chain to the worker will result in the client being liable and having fee-payer responsibility. Similarly, if the next party in the supply chain after the client fails to pass along the SDS they will be presumed to be the fee-payer and liable for any loss of tax.
  • The draft legislation introduces a client-led disagreement process which allows individuals and fee-payers to challenge determinations. 
  • Fee-payers will not be required to make deductions for pension contributions. 

As the Bill is currently in draft form members are reminded that as it passes through the legislative process there may be further amendments. 

A technical consultation on the legislation closes on 5 September. 

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