Preparations for April’s IR35 changes ‘take many forms’

Will IR35 be delayed again? Last week as the country went into another lockdown a question doing the rounds, we noticed, was whether it would trigger a further delay to the IR35 legislation which is due to come into force in April for the private sector. A reminder – these rules require that employment taxes be paid by people who provide services to a business through an intermediary, usually a personal service company, a PSC, if that person would otherwise have been regarded as an employee of the engaging business. Currently, liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC. From April that will switch to the engager. Despite the speculation, our view is there will not be any further delay. We say that because last week one of our tax lawyers, Penny Simmons, attended a meeting with the Revenue to discuss late amendments to the legislation so that the rules can operate as intended. She came away with the very firm impression that the government has no intention of delaying the rules beyond April. Penny has posted an article on the Outlaw website to that effect with the clear message ‘If you haven’t done so already then you should urgently review the impact that the changes are likely to have on your engagements with contractors and agencies.’

Penny, and her colleague Chris Thomas, have been helping clients to undertake that review – something they have been advising on for a very long time given we expected this legislation in April last year and many clients were preparing well ahead of that deadline. I phoned Chris Thomas to ask what that amounts to in practical terms and why the government is not considering any further delay:

Chris Thomas: "We do anticipate this will be coming into force in April. Now, obviously at the moment I think we all know that it's difficult to predict the future and never say never and lots of things have happened at very short notice that none of us would have anticipated would have happened, however, every indication from the government is they intend to proceed with this. They have passed the draft legislation and there is no indication that they are going to defer the start point and I think the government's view probably is, well, look, you know, you have had literally years to prepare for this, you have known this is coming for a long time, yes, we allowed a year's grace period because of the impact of the pandemic but actually there has been more than enough time now and businesses should be ready. So, I cannot absolutely rule out the possibility they will defer it again but we are certainly not seeing any kind of indication that that is the case so I think it would be unwise, probably, to assume that it's likely to be delayed so I would say absolutely get ready on the assumption that it is going to be coming in. Then on the other question as to sort of the different ways in which businesses can look at preparing and making sure that they are as ready as they can be, as I have mentioned previously there are a number of ways in which that can be done, a number of things that you could be thinking about, and it will depend to a large extent on how far you are down the track with preparations and some businesses are very advanced and some, perhaps, perhaps less so. So, at the one end we are some clients are finding it very helpful to have training sessions or workshops, round table sessions with all the relevant stakeholders from the different parts of the business, with HR, tax etcetera, all round a virtual table, with us facilitating perhaps a discussion as to what this means and what they need to be looking at and then discussing actually how that fits with the particular business's strategy and market, so that is one thing that is certainly worth doing if you have not already done that, to get things properly kicked off. We have already talked about the basis on which a business might actually approach making those status determinations, is it going to use CEST or is it going to do it another way, and we're finding that some clients are finding it quite helpful to try to focus on the tools for making a risk assessment and understanding where the red flags might be. You would almost describe it as a facilitation of the risk assessment so the business still does it, and it is not an absolute tool to give an absolute yes or no answer but it is helping to understand where the risks lie, what sort of patterns to be looking out for to identify when you might have someone who is a higher risk of falling within IR35. Then, of course, the other side of things is contracts, and we are seeing a lot of businesses that are looking at putting in place either new or updated contracts. Now that might be where you are engaging someone's personal service company directly, updating consultancy agreements to make sure they adequately cover off what needs to happen and make sure that the risks are covered. Or, and this is the more complicated bit, where you are dealing with perhaps agencies, sourcing resource that way, or indeed where you are getting resource coming in from suppliers who perhaps might be supplying people as part of what they are doing, and that gives rise to a couple of issues. One of them is being clear that you understand the circumstances in which, what you are getting is a fully outsourced service such that the IR35 risk is not likely to lie with you as end business versus cases where, actually, what you're getting is individual people, or at least as part of that service, or actually, you might have the risk as the client yourself. Having done that then obviously the other the other aspect of this is the contract that you are entering into with that agency and making sure that it is as updated as it can be to cover off who is going to need to do what. So how you are going to determine that someone they are sending might potentially be within scope of this, how you are going to determine that an assessment needs to be made and who is going to do what, who's going to deal with appeals, etcetera. So, all of that needs covering or, alternatively, some businesses are taking the view that they just do not really want to be having their suppliers or their agencies provide people who would be within this, so that they just don't want the responsibility of actually having to do the determination at all, in which case again, clearly that needs to be set out and provided for in the agreement as well. So whichever way you are going to go with this, you need to be thinking about amending the agreement that you've got with your supplier so that it's very clear that that that's properly covered off.”

That article we mentioned by Penny Simmons following her meeting with the Revenue last week is called ‘IR35: 'no further delay' to April start date expected’. You can find that on the Outlaw website, along with news of all the latest developments.