Government Fails to Listen to Business and Pushes Ahead with IR35 Reforms

The government has published the long awaited draft Finance Bill (11 July) containing information on the off-payroll working rules reforms, or IR35 as it is most commonly known.

Below are four key pieces of the legislation which will affect recruiters:

1. The small business exemption will be going ahead

Small businesses as defined by the Companies Act will be exempt from the rules. Unincorporated organisations which have a turnover of more than £10.2 million per year will also be exempt. It has always been the REC's belief that such an exemption would undermine the off-payroll reforms by exempting up to 95% of businesses (HMRC’s own figures) and cause greater complications to an already complicated tax system. There are also new rules about when a client ceases to be or becomes a small company and therefore exempt.

2. Clients will have a duty to pass the IR35 determination to the worker directly

The new rules will require clients to pass the status determination and reasons for the determination (the status determination statement) to both the next party in the contractual chain and directly to the worker. The government believes that this will improve the clarity that the fee-payer and the worker have over their tax position. Although transparency is welcomed, this approach does not take into account the administrative burden this would have on clients and agencies who will have to transfer the personal data of tens, hundreds, and in some cases thousands of workers to their clients.

3. The flow of liability and IR35 determination

Under the new rules all parties in the supply chain will need to pass along the client’s status determination statement to the next party in the supply chain until it reaches the fee-payer. If a party fails to communicate a worker's SDS to the next party in the supply chain it will be liable for any loss of tax. If government is unable to secure the tax from the non-compliant party then they will try to retrieve it from the first agency in the chain.

4. Client-led resolution process to handle disputes

Disagreements about status decisions will be managed through a client-led disagreement process. However, in the REC’s view disagreements about a decision should not be managed by the client who made the decision in the first place. There is concern from our members that leaving it up to clients to resolve IR35 disputes will result in inconsistency across businesses in how they handle disputes and a biased system favouring the clients. Clients will also have 45 days to respond to IR35 disagreements. If they fail to respond within that time period the client will be deemed to be the fee-payer. 

The REC will be running a series of workshops throughout the rest of 2019 and into 2020 to help members prepare for these changes: a list of dates can be found here. Meanwhile the Legal Services team are working on detailed advice.