The Government’s recent draft Finance Bill looks set to confirm changes to the off-payroll working rules. The changes were announced in the Spring Statement, and are expected to take effect from April 2020.
IR35 responsibility set to shift in private sector
The Government’s reasoning for the proposed changes describe a need for better compliance with the existing rules, especially in the private sectors. Larger bodies will become responsible for assessing an individual’s employment status and deducting the right tax and National Insurance contributions.
What is IR35?
The ‘off-payroll’ rules, officially called IR35, allow HMRC to tax sole traders as employees if it deems their working arrangement to be akin to regular staff. Once the new tax year starts, the rules will also be applied to private businesses where services are provided on or after 6 April 2020 (rather than based on when payment for the work is made).
The responsibility for deciding whether IR35 should apply to self-employed workers shifted from contractor to employer in the public sector. It’s this change which is now set to apply to the private sector from April 2020, if the Finance Bill passes without amendments.
The FSB calls for a delay
The FSB points out the uncertainty of Brexit is already causing disruption to a quarter of a million sole traders, as reflected in its own Q2 Small Business Index confidence measure.
FSB Chairman, Mike Cherry has expressed concern that changes to IR35 aren’t taking into account the other pressures that businesses are currently under. “It’s a reckless move,” he warned, going on to point out that many smaller firms who on sole traders have small or non-existent HR teams, and no experience of navigating IR35.
“Left unamended, this bill could easily usher in an environment where firms in need of expertise in the short term steer clear of the self-employed community because they’re afraid of making an incorrect assessment, which would be damaging for all concerned.”
Getting the tools in place for IR35
HMRC’s CEST tool (Check Employment Status for Tax) can be used to determine whether or not IR35 should apply.
Reliance on this tool means businesses are at risk of failing to take responsibility for their decisions. By HMRC’s own admission, CEST delivers an undetermined result in 15% of cases. It also gave different judgements to those made in recent rulings, in a number of high-profile court judgements.
So who takes the blame if it’s wrong?
It’s not something that anyone has provided a satisfactory answer for just yet.
“The flexibility of our labour market is one of our economy’s greatest strengths. By bringing in these changes prematurely, we risk undermining that strength at a time when it’s desperately needed.”