While the employment status tests themselves have not changed, and will not change, the parties responsible for administering the rules have and new responsibilities have been introduced.
The April 2021 reforms will see medium and large private sector businesses in charge of determining IR35 status of an assignment. The tax liability will also transfer from the contractor to the fee-paying party in the supply chain.
We have outlined the key points mentioned in the draft legislation below.
‘Small’ companies exempt
For companies that HMRC deems as small, they will remain exempt from private sector reform. This means that contractors engaging with a small private sector company will still be required to set their own IR35 status.
HMRC deems a company as ‘small’ and therefore exempt from the IR35 reform if they meet two of the following criteria:
- Annual turnover doesn’t exceed £10.2m
- Balance sheet total doesn’t exceed £5.1m
- No more than 50 employees
In this situation, if you are the fee-payer placing contractor into ‘small’ companies, the contractor will continue to set their IR35 status and carry the liability.
Introduction of a Status Determination Statement (SDS)
When making IR35 decisions, private sector companies will be required to share their reasons for a particular determination with contractors and the first recruitment agency in the supply chain. This must then be passed down the chain until it reaches the ‘fee-payer’.
HMRC calls this a status determination statement has introduced it with the aim of increasing transparency with regards to assessments. Until the client shares this with the contractor and the fee-payer, they will carry the liability and therefore the risk.
The April 2021 reforms detail a requirement to use ‘reasonable care’ when making status determinations. Whilst the legislation does not define what constitutes reasonable care, it is safe to say that blanket determinations will not qualify. Failure to take reasonable care will invalidate the status determination statement and mean that the end hirer retains the tax liability.
Debt transfer provisions
IR35 reform introduces a new power for HMRC to collect PAYE that goes unpaid from other parties in the supply chain. This will apply to all contracts in the public sector and engagements with medium and large companies in the private sector from April 2021.
This means that if the fee-payer fails to make deductions and pay the PAYE tax and NI liability, HMRC can recover the unpaid liability from other organisations in the supply chain.
How can Tag Agency help?
There is no doubt that the above changes present significant challenges to recruitment agencies and the contracting industry. Tag Agency have many years’ experience in helping recruitment agencies and contracting companies manage legislative change, so if you would like to improve your knowledge of the legislation or to manage this risk get in touch with our specialists at [email protected]
Why not register for the Zoom update at midday on the 8th of June at the following link: https://us02web.zoom.us/meeting/register/tZApcu6tqTMoHNH7N4zt_xOy9kT7c1O9-fvv