'Concern over status determinations' after IR35 delay

The rules were due to change from 6 April but this was delayed by a year because of the coronavirus pandemic.

Given how close the announcement to delay came to the anticipated 6 April start date, many businesses had already rolled out new IR35 compliancy processes and had issued status determinations to all contractors that they engage through personal service companies (PSCs). Therefore it is unsurprising that there is now uncertainty and confusion about what happens to contractors where they have received a status determination statement confirming that they are inside the IR35 rules and that future income tax and national insurance contributions (NICs) would be deducted before they are paid.

Both businesses and contractors are being advised that any status determination statements that have already been issued are now redundant, since the requirement to issue the statement will not become law until next year. It is hoped that HM Revenue & Customs (HMRC) will shortly issue a statement confirming that this is the case and provide much needed reassurance to all affected parties.

The delay to introducing the changes to IR35 was announced last week by the UK government, as part of its measures to help businesses and individuals deal with the economic impact of the Covid-19 pandemic. The draft legislation was not included in the draft Finance Bill that was published last week, although it is understood that the draft legislation is still likely to be included in this year's Finance Act, once it has been amended to reflect the revised implementation date of 6 April 2021.

On balance, despite time and resources already having been spent on preparing for the reforms, the delay will be helpful to businesses. One of the criticisms from business has been about the fact that final legislation has still not been published - if legislation is eventually included in this year's Finance Act, businesses will have just under a year to digest the legislation and guidance and obtain clarity from HMRC on any areas of the rules where uncertainty remains.

There remains concern amongst businesses as to what they should do where they suspect that contractors may not be properly applying the existing IR35 rules. In the absence of further guidance from HMRC, when notifying contractors that status determination statements will no longer apply, businesses are advised to remind contractors of their obligations under the current IR35 rules and that they are responsible for ensuring that they are fully compliant with all tax legislation and pay their taxes when due. Such a reminder will also help businesses demonstrate that they have reasonable procedures in place to prevent the facilitation of tax evasion, as required under corporate criminal tax offences introduced in the Criminal Finances Act 2017.

The IR35 rules require that employment taxes be paid by people who provide services to a business through an intermediary, usually a PSC, if that person would otherwise have been regarded as an employee of the engaging business. Currently, where a private sector business engages a contractor through a PSC, liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC.

The change to the rules, which was due to take place on 6 April, will make large and medium-sized engaging businesses liable for determining whether the IR35 rules apply. This is already the position for public sector engagers. Engaging businesses will also be required to operate PAYE and pay employers' NICs. Small businesses which engage contractors through PSCs are exempt from the change.

The government announced a number of concessions for businesses last month following a review, including a 'light touch' approach to penalties in the first year of operation and confirmation that the new rules would only apply to services carried out after 6 April, regardless of when paid for. It is still unclear the extent to which these concessions will be carried forward to reflect the delay.