NewsFlash: IR35 reform – draft legislation released

As expected draft legislation was published by the Government for expanding the public sector IR35 reforms to large and medium sized businesses in the private sector. Despite speculation about delay, the publication of the draft law keeps the government on course for implementation on 6 April 2020.

The Government’s intention is to ensure that two people working side by side in a similar role for the same employer pay the same employment taxes regardless of the sector that they work within.

The draft legislation, which is now open for consultation until 5 September 2019, will be introduced in this Autumn’s Finance Bill.
 

What you need to know

• The Government fully intends that these new rules will be effective from 6 April 2020 which now gives employers less than 9 months to prepare fully for the change.
• In essence, the draft legislation extends the current rules that apply to the public sector to “Medium” and “Large” private sector organisation but with some changes that will apply to both private and public sectors.

Yesterday’s draft legislation updates the existing legislation for the following main points.

A new status determination statement
The draft legislation introduces the statutory concept of a “Status Determination Statement” or “SDS”, which clients will be required to provide directly to the worker. This SDS must include not only the decision of the client’s “deemed” employment status but also the rationale for reaching this conclusion. This changes the existing public sector rules which place an obligation on the client only to provide this rationale within 31 days of a request for it.

There is a new explicit requirement for clients to take “reasonable care” in undertaking status assessments. Failure to take reasonable care or failing to provide an SDS will result in clients being deemed the fee-payer where they are not already, and thus the entity responsible for PAYE/NIC withholding.

The draft legislation requires the end user to provide their status decision, via an SDS, to both the entity with which they are contracting and directly to the worker. The legislation then facilitates this SDS being passed down the labour supply chain until it reaches the fee-payer

A statutory regime for dispute resolution
The original consultation suggested that there was a need for an end user-led status disagreement process and this has materialised with statutory rules in the draft legislation.

At any point following receipt of an SDS the worker or fee payer may make “representation” to the end user where they are not in agreement with the status determination statement issued. The end user then has a 45 day window in which to consider the representation and whether this changes their original status decision. It is currently unclear as to how the PAYE/NIC treatment during a prior period is to be rectified following a representation that results in a change to the SDS.

Transfer of debt/liability
Amendments to allow for the recovery of PAYE due under these rules from any person who is a party to the arrangement are also being made. This legislation has not been published and their contents will be likely to impact the need for end clients, agencies and intermediaries to have additional contractual protection in contracts.

Small company definition
‘Small’ companies and ‘small groups’ of companies, as defined by the Companies Act will not be required to operate these rules. The same tests will apply for Limited Liability Partnerships. For other unincorporated entities the Companies Act’s turnover test will be the only test that applies.

Deloitte’s view

• The draft legislation, intended to be effective from 6th April 2020, provides organisations with further confirmation as to when the public and private sectors will once again be on a level playing field in terms of employment taxes.
• The draft legislation still does not provide a statutory requirement for any party to inform the end user that they have entered into a contract involving an intermediary and that therefore a status determination will be required.
• The legislation does not address the deficiencies in the way it deals with retrospective action where an incorrect status determination was originally made.
• Both the SDS and end user-led disagreement process add additional obligations for end users in terms of record keeping, considering representations made and re-visiting initial decisions.