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IR35 Advice Centre

 

​IR35 Reform in the Private Sector

IR35 Reform in the Private Sector
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Contact Qdos Contractor:0116 269 0999
 
 

IR35 Guidance

 

Off-Payroll Working in the Private Sector

New rules regarding ‘off-payroll’ workers in the public sector came into force on 6th April 2017. From this date, the responsibility for determining the IR35 status of a contract shifted from the limited company contractors, to the public sector end-clients. The Autumn Budget 2018 took place on the 29th October, where it was announced that the off-payroll rules in the public sector would be extended to the private sector as well as of April 2020:

“The government has carefully considered all of the responses received and we are now in a position to propose extending rules similar to the April 2017 public sector off-payroll working reform to the private sector. Having listened to concerns, the changes for the private sector will be introduced from April 2020 for medium-sized and large businesses only.”

This means that for medium and large sized businesses, the end clients will be responsible for determining the IR35 status of the contractor, and the agency or end client will be responsible as the ‘fee-payer’ for deducting the relevant tax and NICs; small businesses will be able to continue as they currently do.

Those workers who fall inside of IR35 will be required to have PAYE and National Insurance Contributions (NICs) deducted at source from their income.

For agencies/hiring organisations, taking steps to understand the contractor workforce from an IR35 perspective is imperative to help you build a process for managing the reform when it comes into effect in 2020.

For contractors, it is important to understand your rights and obligations under the new rules.

Below we outline how to deal with the reform should it go ahead, whether you are a end client engagerrecruitment agency/recruiter or contractor. If you are a recruiter or business engaging contractors, please get in touch on 0116 269 0992.

 

Contact

 

​freelancer@qdoscontractor.com
0116 269 0999

Press Contact

 

Benedict Smith
ben@levo.london / 07341773805

IR35 reform key points

 

Since reform was introduced in the Autumn Statement 2016 (following on from the consultations of 2015 and 2016), industry professionals and the contracting community have long deemed the rules as a test bed for rolling out to the private sector as well. There were numerous indications that the off-payroll working rules in the public sector would be extended into the private sector. HMRC officials including Jim HarraIR35 Forum members, and Government representatives including Mel Stride, suggested that the public sector rules have been successful with minimal if any negative impact.

Following several consultation documents, the draft legislation was finally published on 11th July 2019, bringing the public and private sector rules into line. Key points include:

- Small private sector businesses will be excluded from applying the rules.

- Hiring organisations will be required to provide a 'status determination statement' including the ultimate status decision as well as the reasoning behind it to both the contractor and next party in the chain.

- Liability as the fee-payer will be dependent on the meeting of obligations e.g. until such time as the client provides an appropriate status determination statement, the client will be deemed the fee-payer and therefore liable.

- Introduction of a "client-led status disagreement process" whereby the client must respond to any dispute within 45 days, with both the decision and reasoning. Whilst this provides a contractor with the opportunity to present evidence against a determination, it ultimately removes a contractor's ability to appeal via ADR or to a tax tribunal.

- Supporting documentation confirmed further updates to CEST and definition of 'reasonable care'.

What to do if you are an end user

 

As a medium or large sized end-client business who is engaging the contractors, it is crucial to be fully aware of the changes to communicate effectively and consider:

  • Determining the Status of Off-Payroll Workers – When reform takes place, the end client will be responsible for determining the IR35 status of the workers whom they are engaging. It is down to the end client to carry out this process, and take steps accordingly in liaising with all parties involved to communicate any decisions made. It can be a complex procedure, and there are a number of services to consider, including HMRC’s CEST tool and Qdos’ ‘Status Review’ system tool to help determine the IR35 status.

  • Liaise with PSC Workforce to Ensure no Walkouts – It is key to ensure that those who are operating through their own Personal Service Companies (PSCs) are liaised with and are aware of the changes. Consistent and relevant dialogue is crucial to ensure there are no walkouts and both parties involved are fully aware of the decisions that are made, and how they will be made.

  • Train Relevant Internal Resource on IR35 – In order to effectively determine each status correctly, it is important for the relevant resources to be trained on IR35, so that they are capable of following the rules. Each engagement should be reviewed on its own merit and making ‘blanket’ decisions should be avoided. Whilst there may be similarities in delivery of services within certain groups of workers, there should still be a considered assessment undertaken.

  • Inform Agencies of Decisions – Any determination that is made on a contract needs to be communicated to the agencies, as they are usually the fee-payer; should it be determined that the worker is operating within IR35, the agency will then be required to deduct the correct PAYE and NICs as though the worker were an employee.

What to do if you are a ​recruitment agency/recruiter

 

With the public sector rules having been implemented a year previous, private sector engagers are in a much better position, with a finalised ‘Check Employment Status for Tax’ tool (CEST) and the experience of IR35 professionals like Qdos Contractor.

As an agency/recruiter, there are several steps that need to be followed in order to ensure you are well equipped when changes come into place, including:

    • Liaising with End Clients – You will need to liaise with end clients with whom your contractors will be placed. This will create a clear form of communication to ensure the correct steps are followed with each individual contract.

    • Review Administration Processes for Payroll – When reform takes place, the fee-payer will be responsible for administering payroll for contractors, meaning you may have to deduct the relevant tax and NICs based upon each individual contract and its determination (of being inside or outside IR35). It is important to consider existing processes and systems as early as possible to ensure you are equipped with the appropriate tools.

    • Maintain Reporting – It is crucial to keep a record of payments that are made to contractors, and will need to be reported to HMRC using a Full Payment Submission, similar to that of PAYE workers and keeping a recording of deductions on a deductions working sheet.

    • Qdos Status Review – For the public sector rules, Qdos developed a compliance management system – The Qdos Status Review – which enabled a number of agencies and end clients to minimise the disruption of the rules and provide fair opinions for their contractors and insure the risks involved. When reform takes place in the private sector, this system will function perfectly for private sector recruiters/engagers as well. Please contact Nicole Slowey on 0116 2690992 to discuss, or email info@qdosstatusreview.com.

    Although it may seem straightforward, most agencies are not equipped to set up contractors onto a payroll and are not able to make the necessary deductions, which therefore adds a wealth of administration required in liaising between contractors and end clients to determine the status of each engagement.

    Reform will be a stressful time for your contractors. They run their own businesses and are used to having control over their tax affairs, so keeping your contractors informed with good communication channels will help the process for everyone involved. 

What to do if you are a contractor

 

As with the public sector reform, the responsibility for determining your tax status would be passed on to your end client if you are engaging with a medium or large sized business, and inside IR35 determinations would place you onto their or your agency’s payroll; If you are engaging with a small business then this process still stays with the contractor themselves. In some instances, the agency-end client will only accept contractors operating through umbrella companies or other trading styles.

This lack of control puts contractors in a difficult position for ‘what to do’:

  • Open up a Dialogue with Your Agency/End-Client – Understanding their intentions is the first step. Your tax status won’t be your decision anymore, so speaking with your end user/agency is the best way of determining what will happen and how it will happen.

  • Encourage Your End-Client/Agency to Speak with Qdos – The compliance management system put in place requires the end client and agency to be on board with the process, which means whilst it would provide a fair and pragmatic solution to the reform, you can’t use it without your client and agency including it into their processes for implementing the rules. A number of agencies/clients we work with for the public sector have been referred to us by their contractors, so encouraging them to speak to us may help you in the long run.

  • Check Your Status – Whilst we don’t recommend using the CEST tool in general (due to clear biases and purposefully neglected key status tests), it is likely to be the first port of call for many end clients. Using this tool will give you a heads up of what your result will or expect to be (remember that you may have differing opinions on how some of the questions are answered). You may also want to have an independent IR35 contract review completed for the same reasons.

Until reform takes place in 2020, contractors will still be responsible for determining their own IR35 status, and is still advised that you continue assessing your status with contract reviews and look to protect yourself against an enquiry. If you are engaged to a small business, the current rules will still apply even after reform, meaning you will continue to determine your own status as normal with no changes.

Most importantly, don’t panic – the private sector has been awarded time to prepare, and that time can be used wisely to ensure you are well equipped and aware of the rules and changes.

 

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The Company

 

About us

Why Qdos?

 

Qdos Contractor are a leading authority on the IR35 legislation, having handled well over 1,500 IR35 enquiries on behalf of UK contractors since its introduction in 2000. Qdos have been at the forefront of the public sector changes, developing a compliance management process which has enabled over 30 agencies/end clients to minimise disruption, and thousands of contractors to receive an independent and fair assessment of their status. In addition, Qdos are one of the leading providers of specialist contractor services in the UK.

 

Our History

 

Qdos began in 1988 as a tax consultancy business and has grown significantly over the past two decades, providing expert business services, products and advice. Over the years, Qdos has grown in both size and reputation as a trusted contractor insurance broker as well as an expert tax advisor. Our aim is to provide UK contractors with the assistance and service with IR35 issues they need as well as sustaining excellent quality and competitive premiums in the contractor insurance market.

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