Last week Chancellor Kwasi Kwarteng announced that the government will repeal the IR35 rules for both the private and public sectors. There's been no prior consultation and this was completely unexpected.
IR35 reform – the current law
Organisations in the public and private sector engaging ‘off-payroll’ workers via a personal services company are responsible for determining their employment status and paying Income Tax and NICs for those who are deemed employees or workers.
This has created a real headache for employers and emerging caselaw has made IR35 assessments complex. The CEST tool has been widely discredited and has even resulted in government departments receiving enormous tax bills for getting their contractor status determinations wrong.
From 6 April 2023, workers providing their services via their personal service company will be responsible for determining their own tax status. If they are an employee, they become responsible for paying their own tax as if they were an employee. In other words, we go back to the same system in place prior to the rule changes which in the case of the private sector only came into force last year!
In its policy paper, the Government states that the proposed repeal will: “free up time and money for businesses that engage contractors, that could be put towards other priorities. The reform also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules.”
Do you need to do anything now?
No. The legislation will have to formally repealed via a new Finance Bill (which hasn't yet been published). And until it is repealed, the off-payroll rules remaining binding. So, you are still responsible for determining the tax and employment status for those deemed to be employees or workers and paying any Income Tax and NICs due.
We assume that HMRC will continue to police IR35 in line with the existing law and issue notices to pay the Income Tax and NICs for those individuals deemed to be workers or employees as well as impose interest charges and penalties of up to 100% of the tax due.
We therefore recommend that you continue, as part of your on-going risk management processes, to:
- review each individual’s working practices and report on risks and whether engagement falls inside or outside of IR35;
- review your contracts and indemnities;
- prepare a status determination statement and information to be sent to the worker and any intermediaries;
- provide an appeal service in the event that a worker appeals against your status determination.
Even though you won't have a responsibility to determine the employment status of any individual you engage via intermediaries for tax purposes from April next year, you can't ignore employment status altogether. If the relationship is artificial, HMRC will be able to unpick it. The employee may also try to bring a claim against you and, if successful, may be entitled to employment rights such as protection from unfair dismissal/receive a redundancy payment and the right to receive holiday pay etc.
We can help
We have a huge amount of experience in dealing with IR35 and can help you with any stage of the process. For further advice, please contact Charlotte Sloan.
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