Public Sector Workers
From April 2017, public sector workers will no longer be responsible for applying the IR35 rules. Instead, the responsibility will be placed on the end client (or agency if one exists) to assess employment status and make payment of applicable taxes. HMRC will be developing an optional online tool to assist the engager in making these decisions, with draft legislation available from 5th December 2016. Qdos have been speaking with key parties to develop a practical and compliant process which help both agencies and contractors with this amendment.
Travel & Subsistence
PSCs will no longer be able to claim travel & subsistence expenses if IR35 applies. This means that if investigated with regards to the IR35 legislation and eventually found to owe HMRC, liabilities for expenses in respect of travel & subsistence will also be owed, increasing the financial risk of IR35.
The Business Entity Tests (BETs) introduced in 2012 were criticised by many leading authorities as unhelpful, with the majority of genuine contractors finding themselves in the higher risk bands. Many were misusing the tests to determine their employment status as was a natural response to the guidance. Taking note of the dissatisfaction with the tests, HMRC have now removed them with no plans to reissue a new version. All investigation-free guarantees previously issued will still be honoured.
The 2013 Finance Bill introduced an amendment to the legislation specifically targeting those who hold office positions in their end client’s organisation. An “office holder” is considered as someone who holds a “permanent, substantive position which had an existence independent from the person who filled it, which went on and was filled in succession by successive holders.” This will mostly include interim managers who take on management roles in their client’s business. If you hold office duties at your end client’s organisation, then you will need to apply IR35 for tax purposes under these rules.
Public Sector Workers
Contractors who are engaged with an end client in the public sector, including bodies such as the BBC and NHS were affected by this amendment. If your end client is in the public sector, you have a contract for a duration of six months or more at a rate of £220 per day or higher, then you will be required to provide your client with assurance that you are applying IR35 correctly. If your client is not satisfied with the assurance you have provided, they may pass the information on to HMRC for further investigation. Assurance must be provided within 20 days of starting or renewing a contract, and failure to provide satisfactory assurance, may lead to termination of the contract. Qdos have developed a review package specifically for public sector workers. Find out more here.
In a bid to assist contractors with understanding the IR35 legislation, HMRC have released the Business Entity Tests (BETs) as a tool for self-assessing risk of investigation from HMRC. The tests work on a point scoring basis, amounting to a level of risk. If found to be low-risk, a contractor could be guaranteed a three-year investigation-free period if they can provide satisfactory evidence to support their test results.
The IR35 Forum was introduced in response to the 2011 Budget and met for its first formal discussion. The Forum consists of status experts, industry bodies and HMRC representatives. The Forum meetings can be expected to engage conversation on concerns with the legislation, administrative advice and debate for improvements in an overall effort to improve the legislation. All previous meetings can be accessed here.
A crack team of tax experts and treasury officials were appointed with the task of reviewing the IR35 legislation, as the new Office of Tax Simplification (OTS). The OTS put forward to either abolish the legislation or improve its administration. The government, however, could not bring themselves to do away with the legislation, so the OTS will set to simplifying the legislation, improving efficiency and developing guidance.