Draft IR35 legislation provides blueprint for engagers to start preparations for reform
The draft legislation for off-payroll working rules (IR35) were published last week on 11th July, which will apply to both the private and public sector. Its publication outlines more definitive plans for how the final rules will look in April, allowing private sector engagers to begin preparations.
What are the off-payroll working rules?
The off-payroll rules were first introduced into the public sector in 2017, putting the responsibility of determining IR35 status onto the hiring organisation, and where the decision is that the contractor is employed for tax purposes, causing the organisation which pays the contractor (usually recruitment agency) to become their deemed employer – responsible for deducting the relevant tax and NICs, and liable for incorrect payments.
From April 2020, these changes will be extended to the private sector, with the exemption of hiring organisations which are classed as small according to the Companies Act 2006. For these companies, the contractor will maintain responsibility for determining their status and making the necessary tax deductions.
Key amendments from the draft legislation
Whilst the draft legislation by and large merely confirmed the suggestions put forward in the latest consultation which closed May this year and that the rules would be aligned with those already in the public sector, there were a few considerations to be made and which will apply to the public sector as well:
- Hiring organisations will be required to provide a ‘status determination statement’ to both contractor and company which pays the worker (usually recruitment agency). The statement must include both the decision and the reasoning behind it. Until such time as this is provided, the hiring organisation will be considered the fee-payer, and therefore liable for any taxes due.Qdos Status Review assessment reports already include all of the required information for the status determination statement as well as automated sharing with the required parties, so clients can be assured that this obligation is fulfilled.
- Hiring organisations will be required to implement a ‘client-led disagreement process’ to manage disputes over status determinations. Clients will have 45 days to respond to any dispute and must provide a result following consideration, as well as the reasoning behind it. Failure to do so will be seen as a failure to fulfil obligations, and the client will then be considered the fee-payer, liable for any taxes due. Qdos are working to add a dispute feature within the Status Review portal which will seamlessly manage this process.
Organisations must prepare now
With the draft legislation now published, we have a clear view of what the off-payroll rules in the private sector will look like. This provides sufficient information on which organisations can base their decisions and begin the planning process.