The new DRAFT IR35 legislation which has just been released by HMRC, could potentially be really good news for many of our smaller sized clients. Of course, this is draft legislation and it could be subject to change but it does include promising signs for many of you, here is a summary of the key points and our initial thoughts on them:
• Small businesses outside of scope
• New Status determination Statement
• New Client led disagreement process
The draft legislation amends the existing public sector legislation in respect of IR35. The new provisions will apply to public sector bodies as well as medium or large businesses in both the private and third sectors.
For PSCs in the private sector, where the end-client business is a small company as defined by the Companies Act, the new legislation will not apply, meaning it will be IR35 business as usual. Section 382(3) of companies Act 2006 currently provides:
The qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements:
– Turnover of no more than £10.2 million
– Balance sheet total of no more than £5.1 million
– Number of employees of no more than 50
Also be aware that HMRC have included provisions for anti-avoidance by ensuring that subsidiaries cannot qualify as small company if they’re part of a group.
For supply chains in the private sector where the end-client business does not meet the small companies definition, the legislation will apply. This is the same legislation that’s already in place for the public sector, but with two interesting amendments:
1. Status Determination Statement. The end-client business must provide a statement confirming it has concluded whether or not IR35 applies to that specific engagement. This statement must be provided to the PSC worker and the party who directly engages the PSC. Until this has been provided, the end-client business will stand in the position of “fee-payer” (meaning they’re responsible for ensuring the correct tax and NI treatment) with all the potential liabilities to tax and NI.
2. Client-led disagreement process. The legislation has introduced a mechanism for PSCs to appeal against an end-client decision. The legislation imposes that if a worker or PSC provides representations that it disagrees with the status determination, the end client has 45 days to respond, along with its reasoning, and confirm either its original decision was correct or provide a new status determination statement. If the client fails to do this then, again, they will stand as ‘fee-payer’. It is not clear if a PSC would already be paid in advance of such an appeal, or whether entering such an appeal is accepting that the PSC will not be paid until the matter is resolved. Moreover, there doesn’t seem to be any power within the legislation to suggest that an engager might actually overturn their original decision.
Consultation on this legislation has now opened with the deadline of 5th September 2019 and we will provide you with an update on the response at the time. In the meantime, if you have any questions about how the new draft legislation could affect your business, please do not hesitate to contact one of the team at JRW.