Yesterday evening it was announced that that the application of the new Off Payroll Rules will be postponed for 12 months until 6th April 2021. HMRC has made it clear that this is not a cancellation, merely a delay. The postponement is part of additional support measures to tackle the economic impact of COVID-19. So, given that many businesses using contractors have already made policy decisions and geared up with new contracts and processes, what now?
The answer depends on the policy decision each business has made, and the reasons for it. What is likely is that contractors who have decided to cease working through their own companies will want to revert to using their PSCs; after all the intention of the government decision is that contractors should continue to be able to take advantage of the old rules, so providing them with more available funds to help with the crisis. Let’s not question the rationale behind that here, but see this thought leader article from the Association of Recruitment Consultancies (ARC) – argument around the suitability of the IR35 rules will not go away any time soon.
Those businesses that have decided that they would be able to supply contractors on a gross pay basis under the new rules can leave arrangements in place. They can simply discard the need for the client to make a status assessment, and continue to pay on a gross basis as before and without risk.
Those that have been told by their clients that they should no longer engage with company contractors will no doubt want to advise their clients that the risk of tax liability will now not arise until at least 6th April 2021. Therefore client policy could be revised.
Depending on the client’s stance, engagement with PSCs can revert. New PSC contracts designed for use under the Off Payroll Rules should probably be abandoned for now unless they take into account the possibility that the new rules are dropped or delayed. Those using the latest Lawspeed IR35 contracts can continue to use them as that possibility had been built in, leaving the contracts suitable for both new and old rules.
Those that have decided to work with umbrella companies can still do so, but the dynamics will change as contractors request a reversion to PSC contracts. No doubt decisions will be made on a case by case basis subject to any overriding instructions from the client.
Those that have decided to engage contractors on a PAYE or employed basis could revert to use of PSC contracts, requiring an adjustment to pay rates and termination of the hire contract. Suitable PAYE contracts should allow for immediate termination with no risk of an unfair dismissal claim, whereas unfair dismissal should always be considered when terminating an employment contract. Termination of either kind of contract will avoid the obligation to pay statutory sick pay, for example arising due to Covid19, and agencies may want to factor that in when deciding the way forward and recommendations made to contractors. This consideration is also relevant to umbrella companies.
Agencies should always be aware that umbrella companies may independently decide to rearrange their contracts with contractors, and as always should have contract terms in place to ensure they are not exposed to any other kind of tax risk or liability. Suitable agency to umbrella contracts such as those provided by Lawspeed should ensure that all other risks are fully covered off. This is an area to watch as the government decision effectively removes a major driver for the use of employment umbrella companies, leaving the market potentially more open to abuse.
Finally remember that the IR35 rules were not the only ones coming into play on 6th April. Amendments to the Employment Rights Act (worker rights) and Agency Conduct Regulations (Key Information Documents) will still come into play and require contract and process adjustments. At the same time government measures resulting from COVID-19 are likely to result in business lay off and more homeworking requiring a review of policy and use of correct processes.
For more information or assistance with any engagement contract, employment, termination, homeworking or other policy issue call Lawspeed on 01273 236236.