FAQs for recruitment agencies and end clients
Edited 17/10/22: The planned repeal of the off-payroll working rules (IR35 reform) has been cancelled as per an emergency statement issued by Chancellor of the Exchequer, Jeremy Hunt.
The mini-Budget delivered the news that off-payroll IR35 reform will be repealed next April. The IR35 legislation itself however will not be scrapped.
The reversal of off-payroll IR35 reform was the main takeaway for many businesses engaging contractors, in what was a fiscal event containing an array of tax cuts not seen for decades.
Understandably, that off-payroll IR35 reform is set to be repealed has left businesses with a number of questions.
In this guidance, which we will continually update, we explain how these changes may impact your business and the steps to take to ensure compliance in advance of the changes.
What does this announcement mean for agencies and clients?
Next April, public sector bodies and medium and large private sector businesses will no longer be required to administer the off-payroll rules (nor carry the liability).
The responsibility for assessing IR35 status (and liability which was also transferred as part of the reform), will be shifted back to the contractor.
When will the IR35 repeal happen?
The changes are due to take effect on 6th April 2023. Until this date, things remain as they are and businesses must continue to prioritise their IR35 compliance.
Why has IR35 reform been repealed?
It’s well known that a number of businesses have had difficulty implementing the off-payroll rules – or have chosen to stop engaging contractors altogether due to the changes. This has impacted contractors and the flexibility of the UK labour market.
The challenges that some businesses have encountered were something the newly formed government recognised, as the Chancellor stated in his speech: “In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses.”
Should businesses continue to assess (and reassess) contractors?
Yes, up until 6th April 2023. Newly engaged contractors, along with those already engaged and requiring a reassessment – whether due to the length of time they have been engaged or a change in their working practices – should continue to be assessed for IR35 status. This will remain a legal requirement until the responsibility moves back to the contractor.
Businesses will still hold liability for engagements between 2017 (public sector) or 2021 (private sector) up until reform is repealed in 2023. Ensuring status assessments, contractor engagement policies and applicable records are robust is of continued importance.
Will HMRC ramp up investigations before April 2023?
Prior to the Chancellor’s announcement, HMRC was carrying out widespread compliance activity. We do not expect this to change, irrespective of the fact that the reform will be repealed.
The Chancellor made this clear in his mini-Budget statement, saying: “Of course, we will continue to keep compliance closely under review”.
What should businesses do between now and April?
- First and foremost, businesses should keep their existing processes in place that ensure their compliance with the off-payroll rules.
- Ensure a robust record of all status decisions, issued Status Determination Statements, and policies during the term that Chapter 10 (off-payroll reform) was in place.
- Maintain communication with contractors and help them with their new responsibilities. Many contractors who were required to use alternative working arrangements such as umbrella companies may look to return to PSCs, and businesses should help to ensure fair engagement of contractors under Chapter 8 whilst also ensuring compliant working arrangements.
Can contractors use their Status Determination Statement (SDS) to prove their own status?
Unlike the rules for agencies and clients under Chapter 10, the requirements for contractors’ due diligence under Chapter 8 of the IR35 legislation have never been clear cut. With the responsibility shift, however, we would suggest the following:
- Where the status determination process involves the contractor’s input, such as with Qdos Status Review, the contractor may be able to use the issued Status Determination Statement as evidence of their IR35 status.
- Where the contractor did not provide input to the determination, such as when using CEST or another tool, contractors should seek to undertake their own assessment, demonstrating their own due diligence.
In both cases, contractors should look to reassess their IR35 status ahead of 6th April 2023 and in the event of any material change in circumstances, including but not limited to, the undertaking of a new role.
How can Qdos help?
Qdos have supported contractors with their own IR35 status assessments and enquiry defence since the legislation was introduced in 2000.
Through IR35 reform, we have supported 2,800+ agencies, end-clients and consultancies with status assessments, audits, training and consultancy services as the most trusted opinion on IR35 status.
Leading up to the repeal of IR35 reform, Qdos can support your business with consultancy bespoke to your needs, as well as completing final audits of your processes to ensure compliance with Chapter 10 over the past 2-5 years.
We will continue to issue guidance for both businesses and contractors and can support your contractors with their new responsibilities.
Please get in touch with your Qdos Account Manager or alternatively contact our team on 0116 269 0992 or firstname.lastname@example.org.