Off Payroll Working rules / IR35 – Government publishes review into changes
The results of a government review into the changes to the Off Payroll Working Rules have now been published. Although there had been some speculation that introduction of the changes would be pushed back, this response confirms that the changes will go ahead on 6 April 2020 as planned.
“Light touch” Compliance
The review makes clear HMRC’s intention to take a “light touch” approach during the first 12 months of the new rules as businesses adjust to the changes. The review states customers “will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance”, such as where fraud or criminal activity is suspected.
The review also confirms that HMRC intends to stand behind its previous guidance in that it will not use information it receives as a result of the new rules in order to open historic inquiries into personal service companies (PSCs) for tax years prior to 6 April 2020 (again unless there is a reason to suspect fraud or criminal behaviour). However, it remains to be seen whether this promise will come to fruition as there is still no commitment to amend the draft legislation to include this.
Amendments to the Finance Bill
In response to the feedback received during the review, HMRC has confirmed that the amendments to be made to the Finance Bill and associated guidance will include the following:
- Clients based wholly overseas with no UK presence will be excluded from having to consider the Off Payroll Working Rules. This means that PSCs providing services to such clients will be responsible for any status assessments and for calculating and paying the correct amount of tax.
- Clients will have a legal obligation to respond to requests for information about their size from an agency or worker. This is in response to feedback from agencies and representative bodies who reported concerns about determining whether a client organisation is small, and therefore whether they would be producing a status determination statement
- The time limits for bringing a disagreement under the client-led status disagreement process will be clarified.
Guidance and Training
Lastly, the review confirms that further guidance, training and resources will be made available to support the roll-out of the changes. In particular, HMRC has committed to improving their guidance materials and to raising awareness of these, for example updating the Employment Status Manual guidance and introducing a “self-help guide” on how to spot tax avoidance schemes.
The review also states targeted communications will also be run in order to raise awareness of the rules and to address the “high levels of misinformation” it believes to be in the market, for example relating to the opening of historic inquiries.
Employers affected by the Off-Payroll Working Rules will welcome the clarity provided by these changes, but there remains significant work to be done in clarifying HMRC’s approach to interpreting the rules. In particular, it remains to be seen whether the discrepancies between the CEST test and principles of case law (a source of frustration to many) will be resolved.
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Kathryn Dooks is an employment partner
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