As part of the government’s election campaign they pledged to review the upcoming changes to IR35. This was never likely to include a review over whether the legislation would be enacted, but simply whether it needed any further improvements.
The government have since undertook this review and published their findings. The report (https://www.gov.uk/government/publications/review-of-changes-to-the-off-payroll-working-rules-report-and-conclusions) makes it absolutely clear that the legislation will come into effect in April 2020.
Soft approach to penalties
The report acknowledges that although large companies are well prepared, medium companies and contractors are less so. With this in mind, HMRC will take a soft approach to the legislation initially. That is to say, they will not issue penalties for the first 12 months whilst companies still get to grips with the new rules. Please note, this does not mean that liabilities will not be due, just that penalties will not be levied on top of those liabilities.
No campaigns on PSC’s
The report confirms again that HMRC will not use the change in legislation to target PSC’s where their IR35 status changes post April. This should provide some comfort to contractors.
When the rules apply from
Another question raised during the consultation process was when will the legislation apply from? The government have clarified this point and said that it relates to services provided after 6 April 2020 rather than it being based on any payments after this date, even if the services were provided before April.
Size of the client
There was some concern with the legislation that intermediaries in the supply chain may not be aware of the size of the client and so the government have said the legislation will include a provision which will require a client to respond to a request for information about their size.
Contracting out the work
One of the biggest areas of contention that we are seeing derives from trying to establish who is actually the client and whether the work has been outsourced to another business. HMRC have taken this on board and updated their Employment Status Manuals in this regard, see ESM 10000 for more information on this.
The last notable point was clarification that where a client is wholly oversea’s with no UK presence, the old IR35 rules will apply and it will be the contractor who will be responsible for IR35 compliance.