Key information for hiring organisations and fee-payers
The Government has announced that reform to IR35 in the private sector will be delayed by one year due to the COVID-19 pandemic. As a result, changes to the off-payroll working rules will now not be enforced until 6th April 2021.
This development means that the responsibility for determining IR35 status will not transfer to the hiring organisation, and the associated IR35 liability will not transfer to the fee-payer (the hiring organisation or recruitment agency, as applicable), until 6th April 2021.
In light of the circumstances, this is a wise decision from the Government. However, it should be noted that IR35 reform will be enforced in 2021. This is a deferral, not a cancellation. Importantly, however, this delay allows private sector businesses additional time to get ready for the introduction of the changes next year.
What does the delay mean for us as a hiring organisation?
As explained, you will not need to set the IR35 status of contractors until 6th April 2021. Contractors will continue to decide their own tax status until then and all liability will rest with them in the event of an HMRC challenge.
What about the status determinations we have already made?
Whilst individual determinations that have been issued to contractors will not be required, some businesses will use the determination process to make decisions on particular roles or functions. You are naturally at liberty to mandate that certain roles should be PAYE-only irrespective of the IR35 reform, but can use the coming months to consider and substantiate that position.
Can a Statement Determination Statement (SDS) still be used next year?
If you have issued an SDS to a contractor who is still engaged by 6th April 2021 with the
same contractual terms then it may mean there is no need to provide a new one. Due to the unforeseen circumstances surrounding the delay to the changes, Qdos will not charge a fee for reassessing contractors who are still engaged when reform is introduced next year. For more information, please refer here.
Is there a risk if we allow contractors determined as inside IR35 to use PSCs again?
There is a strong possibility that contractors who had been determined as inside IR35 will want to revert to operating outside IR35, given they remain in charge of deciding their status for another year.
Theoretically, there is a risk to end-clients and fee-payers that re-engage contractors outside IR35, who they previously assessed as inside. HMRC may take the view that the hiring organisation is knowingly participating in tax evasion. Since 2017, it has been a criminal offence for businesses to fail to prevent the facilitation of tax evasion, with the use of off-payroll workers an area of focus for HMRC under the Corporate Criminal Offence (CCO) legislation.
Prosecution and conviction could result in an unlimited financial penalty.
We would say that the risk of this happening is very low, but it is important organisations are fully aware before making any decisions.
What does it mean for us as a fee-payer?
As the fee-payer in the supply chain, the IR35 liability will not be shifted to you until 6th April 2021. Contractors will carry this until then. This means for the time being you can continue to pay inside contractors without needing to deduct the appropriate tax and paying this directly to HMRC. The delay will give proactive recruiters additional time to work with their hiring organisation to ensure they are well placed ahead of next April.
Should we continue with our IR35 projects?
IR35 changes will still be enforced. Many companies we are working with have decided to maintain their IR35 preparations as a ‘live’ project, albeit now with additional time to refine, consider and take extra steps ahead of April 2021. Qdos will be actively working with hiring organisation over the coming months to assist them in such work.