Further to our notification on Wednesday morning regarding the Government’s announcement that the extension of the IR35 Off Payroll rules into the Private Sector has been postponed until 6th April 2021, we thought that it would be useful to provide a more considered opinion.
Whilst for many businesses this will be a welcome development, for others who have already spent a lot of time, money and effort preparing for the changes, there will be an understandable sense of frustration. It is important to recognise that this development is a postponement of the new regime, not a cancellation. The internal processes, that organisations have developed to manage the implementation of the requirements of the IR35 Off Payroll Legislation, will still be required from 6th April 2021. Preparing now, and being aware of the new rules that will impact on ongoing contracts with intermediaries that may still be in place after the 5th April 2021, will save a lot of time going forward. It may also have an influence on how those contracts are structured going forward.
Engagement of self-employed ‘sole trader’
IR35 relates to contracts with Intermediaries, via Personal Service Companies and agencies, engagements with sole traders has not changed and has always been a potential risk. When businesses have been preparing for IR35, in many cases, it highlighted that individuals providing their services on a sole trader basis, may have been incorrectly treated as self-employed. If you are in that position it is important to ensure that this risk is managed properly going forward and we recommend that you take advice to minimise the risk to your business.
This issue applies to all businesses, there is no exemption for businesses classed as ‘Small’ under the IR35 Off Payroll legislation, who are not required to operate under the new IR35 rules. The assessment of the employment status of sole traders has always been the responsibility of the business engaging them, irrespective of the size of the business, and an incorrect status determination can be very costly if successfully challenged by HMRC as the engager is always held liable for the error and any resulting underpayment of PAYE tax, employers and employees Class 1NIC.
As the same employment status factors apply when considering the status of sole traders, risks can be minimised by using the same employment status processes that have been put in place to manage your IR35 Off Payroll obligations.
Public sector employers
The postponement of the extension of the IR35 Off Payroll rules into the Private Sector has no material effect on Public Sector employers. They will still need to continue operating under the IR35 Off Payroll rules that have been in place since 6th April 2017. As before, when advising the intermediary of your decision, it is still good practice to provide them with brief details of the status factors that led to the decision made.
If you have any questions regarding the issues raised, or would like assistance in assessing the employment status of sole traders engaged by your business, please contact our employment tax team.