The announcement last week that the new IR35 rules will apply to work done on or after 6th April 2020 instead of payments made from 6th April will be a relief for many, says the recruitment and employment specialist Lawspeed.
“For businesses supplying or hiring company contractors worried about the fast approaching deadline, it means that those who have decided to terminate existing contracts by 29th February, in order to allow enough time for payments to be made before 6th April, can breathe again. At least for now.
“The cliff edge deadline is exchanged for a new more manageable one. Work done before 6th April can be invoiced and paid at any time without a requirement for the new IR35 deemed payment taxes to apply. In other words, existing arrangements for payment of invoices gross will still apply even if payment is made after 5th April, but only for work done before 6th April.
“The good news ends there. Hirers and agencies should still consider the impact of the new rules on existing contracts. Contractors will rightly be concerned that decisions concluding that ‘employment status’ is deemed under the new rules could affect their claimed ‘outside IR35’ status under the old rules. The evidence of switch from being paid gross to being paid net will be all too obvious from information the paying hirer or agency will have to provide to HMRC, and HMRC will not provide assurances that there will be any pre 6th April amnesty.
“Where status is realistically outside IR35, and the hirer is willing to provide an outside IR35 determination from 6th April, the contracts should be carefully reviewed and tightened up where necessary. Even if an existing arrangement is genuinely ‘outside IR35’ the contract may well be insufficient to capture the tougher regime under which tax risk shifts from the contractor to the hirer and fee paying agency and the cross hairs of tax investigation moves accordingly.
“Whilst a contract may record an outside IR35 arrangement from a theoretical technical perspective, best advice must be to look at it with a sceptical eye from a realistic and practical perspective. After all, this is how HMRC will look at it and if anyone needs evidence of HMRC’s approach one only has to take a look at the online CEST tool. For all the criticism it receives, it provides insight into the inner thinking of HMRC, and no one wants an investigation.
“For arrangements inside IR35 there are plenty of options which involve payment subject to employment style tax. However, again contracts should address the new and different challenges which may arise, not least compliance with an array of worker related legislation and correct tax payment.
“Whilst the new IR35 rules accompanied by the new tax debt transfer regime may be the end of HMRC’s current legislative drive against contractor tax avoidance, a lot of work still needs to be done.”