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**The implementation of Britain's IR35 controversial tax reforms have been delayed by a year due to the coronavirus pandemic.
Secretary to the Treasury Steve Barclay said: “The government is postponing the
reforms to the off-payroll working rules, IR35, from 6 April 2020 to 6 April
With effect from 6 April all businesses (unless they are a “small business”) will take on responsibility for determining the tax status of the contractors they use, which in many cases may include the same contractors they have been using for years.
There is an exemption for small businesses which broadly covers those with a turnover of less than £10M per annum and a balance sheet value of less than £5M.
Other than those exempt, businesses in the private sector will align with the public sector which in recent years has had to adopt the change in respect of contractors.
The business or “fee payer” will be responsible for determining the status of the contractor and if appropriate report that status to HMRC and then deduct income tax and NIC and account to HMRC for the same.
HMRC have an on line tool to assist businesses with this decision. It is called CEST (Check Employment Status for Tax). The tool will take you through a number of questions about how the service is delivered, the location, how discipline might be dealt with, use of branding or clothing etc. The test is derived from the many cases that have occupied the tax tribunals in the past. Essentially, it is a control test and the single greatest factor to emerge over the years relates to the ability of the contractor to provide a substitute for the provision of the service. The less control the business has over that decision and a lack of any veto as to the identity of the substitute the more likely a contractor is deemed to be independent and outside the scope of IR35. Once the determination is made the business will either commence the process of making deductions from the fee or not, as appropriate.
There is clearly the scope for tension at the point of determination. The relationship may have been long standing. What if the contractor disagrees with the determination? The concept of a “status determination statement” has been introduced which is subject to challenge by the contractor and a 45 day response period from the business. The test for the business in reaching its determination will be one of “reasonable care” but as yet no guidance has been issued regarding what constitutes reasonable care. There will inevitably be cases where there is friction given the likely significant reduction in net earnings for the contractor.
Arguably, the change delivers the best opportunity for businesses to review their relationships with contractors and in some cases to acknowledge the “elephant in the room” (that the individual(s) is in fact a Worker or Employee). Whilst drawing a line will not remove all liability relating to the past relationship it will, at least expose and in turn allow for control of the ongoing risk. Such risks as those that derive from employment or worker status; for example, the right to accrue holiday pay.
Where businesses consider they are at risk of being deemed to have employed an individual over a period of time they should seek legal advice, particularly if a change in payment arrangements is likely to lead to a disagreement with the “contractor”.