On 7 February 2020, HMRC issued draft guidance relating to the proposed new UK IR35 regime, in the form of updated sections of its Employment Status Manual (ESM).
The main news is that HMRC have now confirmed that the new IR35 tax and NICs regime will apply only to services provided on or after 6 April 2020. This seems to flow from the draft legislation but had not been said before by HMRC and is a change from the 2017 regime. It will mean intermediaries will not have to accelerate pay runs.
Otherwise nothing in the guidance is particularly new – it appears to confirm our understanding of how the new regime will work (see, for example, our recent Insight on the draft legislation that was published in January).
These are some other key points in the updated ESM sections:
- So-called statement of work engagements have to be genuinely deliverables-based (and not dressed up time and materials contracts) to be outside the IR35 regime.
- If the end user does not use reasonable care in carrying out the Status Determination Statement then it will be primarily liable for the tax and NICs. This is the case even if there is an inappropriate blanket assessment inside and the agency decides to pay outside and the worker is in fact inside the end user is liable…. but end users are likely to ask for indemnities or just prohibit PSCs on a blanket basis so it’s probably a non-point in the vast majority of cases.
- If the Fee Payer does not pay the taxes and NICs due, HMRC will only not bounce the claim up the supply chain (in other words, go after the end user or MSP) if the reasons for the Fee Payer’s insolvency were “just” normal business failure (and not linked to tax avoidance liabilities, for example). But MSPs and end users will never know until it’s too late what the reason for the insolvency is going to be and so many seem likely to conclude that they will always have to assume the liability could bounce up to them, and will form policies relating to their supply chains based on that assumption. Notably the draft legislation does not limit HMRC’s power to transfer the tax debt in cases of normal business failure so taxpayers would be relying on HMRC’s stated practice, which can be difficult to enforce.
- There is some clarity about international engagements.
- There is apparent discouragement of supply chains that are longer than HMRC consider necessary, such as the use of umbrellas.