The Finance Bill that was published on July 11 makes clear that private sector companies have nine months to prepare for changes to off-payroll working rules, known as IR35 despite numerous calls to delay the bill to give the private sector more time to get ready for the changes.
From 6th April 2020, private sector companies will have to check if their contractors need to pay income tax and national insurance. This will place the responsibility of categorising contractors on the company.
IR35 being implemented in the public sector has changed the title of a large amount of people from self-employed to employees, which significantly adds pressure on to HR professionals. Due to the fact they have to make clear the new rules to managers and staff.
Tom Hadley, director of policy and campaigns at the Recruitment and Employment Confederation (REC) said:
The Government has not taken on our strong recommendation to put its IR35 plans on hold, to conduct a comprehensive impact assessment, and to remove the exemption for small businesses. The draft legislation risks damaging the UK’s productivity and labour market flexibility at a time when it is most needed.
We know from experience that the IR35 rules are a huge problem for employers and contractors alike. Making sure everyone pays the right tax is essential, but the rules need to be clear to be effective. The last thing private sector businesses need at this time of Brexit uncertainty is rushed or poorly-designed tax rules that add further uncertainty to an already fragile business landscape.
The REC believes that off-payroll working legislation is among the most difficult tax legislation to comprehend. As some businesses rely on thousands of contractors, making sure they are following the new rules will be a huge and costly task.
Some have taken the view, that despite the fact that the Government has provided some clarity on the issue there is still plenty that has not been answered.
Nigel Morris, employment tax director at MHA MacIntyre Hudson an accountancy firm said:
The draft finance bill gives some welcome clarity on the definition of “small” for an unincorporated body, namely the turnover limit defined in the Companies Act, currently £10.2 million per annum, as well as specifying that all businesses are “small” in their first year.
However, this seems inequitable for incorporated businesses who are only classified as small if they meet two of the three criteria relating to Turnover, Assets and Employees. An incorporated business could be caught by the new rules if they have 51 employees, where an unincorporated business wouldn’t, even if it had 100 employees.
The draft also defines the proposed client-led status disagreement process. If a worker disagrees with a status determination, the client is required to review the decision within 45 days and either change it, or confirm that it is correct and provide the reasons. However it does not go on to say what happens if the worker is still not satisfied. So, it just kicks the can down the road for another 45 days. We would like to see HMRC agree that at this stage they would step in to arbitrate.
The additional tax collected from this new rule is estimated to be £3.1 billion over four years from 2020/21 – 2023/24 and will likely have an impact on 170,000 private sector workers from April onwards.