Unsurprisingly, despite protest from those affected, the government remains committed to its proposed reform to IR35 in the private sector.
Today, draft legislation and summary responses to the most recent consultation were published.
As I mentioned in my previous blog the government had consulted on two areas which would particularly concern businesses: the potential for dispute with contractors on making difficult status assessments and transfer of tax liabilities from other businesses in the labour chain.
Disputes and the “new improved CEST tool”
There is recognition by the government that status determinations can be difficult. It has made further promises of “extensive support” being given in the form of further detailed HMRC guidance, and has reiterated its commitment to have a new and improved “Check Employment Status Tool” available before April 2020. We don’t have a date yet – so businesses may only have a relatively short time before the new legislation comes in to use it.
Some hoped for a HMRC led disagreement process to deal with disputes with contractors over status determinations. They will be disappointed. The draft legislation requires the end user client to create its own disagreement process. Minimum requirements on communication and timescales are set out in the draft legislation.
Liability for the labour chain
As is the case with the current public sector rules, the UK entity which pays the worker’s personal service company (the “fee payer”) is the one that has the obligation to deduct and account for the tax. That business is unlikely to be the end user client where there is a contractual chain involving employment businesses.
If the “fee payer” defaults in paying the tax, the draft legislation provides for HMRC being given the power to push that liability onto the first agency in the chain – or if that agency defaults onto the end user client.
The potential shift in liability will be concerning for both end user clients and employment businesses alike. They will each need to consider whether the steps they have in place to diligence and secure their labour chain are sufficient to protect their business from this potential liability.