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IR35 – updated guidance from HMRC

HMRC has issued draft guidance clarifying certain points of the changes to the off-payroll IR35 rules coming in April.

The updated sections of HMRC’s Employment Status Manual (ESM), is nothing too drastically different from the draft legisaltion previously published.

IR35 changes apply to services provided on / after 6th April 2020

HMRC has confirmed that the IR35 changes will only apply to services provided on or after 6th April 2020. Many already assumed this from the draft legislation but this is the first time HMRC have actually come out and said it. It’s also different to what was implemented in the public sector in 2017.

Nothing else in the ESM updates is particularly new, and mostly clarifies the technicalities of how the new regime will work. Here are the other key points:

S.O.W. Engagements

Simply labelling an assignment as a Statement of Work engagement will not be enough to put it outside of IR35. S.O.W. engagements must be genuinely deliverables-based, and all documentation must reflect what happens in reality.

Reasonable care and liability

If the end client does not use reasonable care in arriving at the Status Determination Statement, then it will be primarily liable for the tax and NICs.

This could also be the case where a client makes an inappropriate blanket assessment inside IR35 and the agency pays outside but the worker is in fact inside…a confusing scenario, but the end client would still be liable.
In reality though, clients are likely to avoid this risk by asking for indemnities or just not use Personal Service Company contractors in their supply chain.

Transfer of Debt provisions

If the Fee Payer does not pay the tax and NICs due, HMRC has the power to go up the supply chain to recover them. The only exception is where the reasons for the Fee Payer’s insolvency was normal business failure, and not linked in tax avoidance liabilities.

The rub is that end clients, and other parties above the Fee Payer in the supply chain, will not know the reason for insolvency until it’s too late. Therefore they have to assume that liability could be extended to them and will make policies relating to their supply chains based on that.

Main takeaway

The main news to take from this update is that IR35 changes will only apply to services provided on or after 6th April 2020.

This gives end clients and agencies a deadline by which time they need to have compliant solutions in place for paying assignments inside IR35.

For help navigating the changes speak to your Liquid Friday Account Manager or call us on 02392 883300.