As we flagged in our post in April 2019 (https://www.mayerbrown.com/en/perspectives-events/blogs/2019/04/ir35-reform-what-employers-can-be-doing-now-to-prepare), the government intends to apply the IR35 reforms to the private sector in April 2020. As a reminder, the IR35 reforms are intended to apply to any individual who, but for the supply of their services through an intermediary, would otherwise be an employee of the end-user client receiving the service. These rules will impact medium and large businesses in their role as the end-user client. From 6 April 2020, these organisations will become responsible for determining the employment status of contractors, regardless of whether they supply their services through a personal service company directly to the end-user or via an agency. The new rules will effectively see a shift in current responsibility on status determination, from the contractor to the end-user client.
On 7 January 2020, the government confirmed the launch of a review, to run until mid-February 2020, to consider concerns from affected individuals and businesses about the implementation of the private sector reforms in April 2020. There has been no suggestion that this review will change the decision to implement the IR35 reforms from 6 April 2020. However, it is hoped that the review will bring some welcome clarification on the new rules for private sector contractors and end-user clients alike.
The government has also published a research briefing paper, in addition to launching the review referenced above, which details the history of the IR35 legislation from 2010 onwards, and sets out some interim responses to certain concerns raised, namely that (see link to Factsheet): i) the new rules will not be retrospective – HMRC will focus on whether businesses are complying with the reform for new engagements post-6 April 2020 rather than concentrating on past engagements; ii) organisations’ decisions on whether individuals fall into the new rules will not automatically trigger an enquiry into earlier decisions in previous tax years; iii) the reforms will not prevent individuals from working through a personal service company or an equivalent; iv) organisations will receive support and guidance throughout the implementation period to ensure that the reforms are applied correctly via initiatives such as workshops and detailed legislative guidance; v) HMRC will continue to improve the CEST tool (a digital tool which has been designed by HMRC to assist public authorities (and now private sector companies) to assess whether a worker falls inside or outside the scope of the IR35 rules) with input from stakeholders; and vi) the status decision of a worker made by an organisation will be able to be challenged in real time through a client-led status disagreement process which is outlined under the proposed legislation.
It would not be advisable to wait until the outcome of the government review before businesses take steps to prepare for the reform. Should you need any assistance with your planning process, please get in touch.