New IR35 draft Legislation

Jul 12, 2019

    • Small end-clients outside of scope

    • New Status determination Statement

  • New Client led disagreement process  

The new draft legislation amends the existing public sector legislation in respect of IR35. The new provisions will apply to public sector bodies as well as medium or large businesses in both the private sector.
 
For PSCs in the private sector, where the end-client business is a small company as defined by the Companies Act, the new legislation will not apply, meaning it will be IR35 business as usual. 

 

Section 382(3) of Companies Act 2006 currently states:
 
The qualifying conditions are met by a small company in a year in which it satisfies two or more of the following requirements:

   – Turnover of no more than £10.2 million
   – Balance sheet total of no more than £5.1 million
   – Number of employees of no more than 50
 
Please note: HMRC have included provisions for anti-avoidance by ensuring that subsidiary companies cannot qualify as a ‘small company’ if they’re part of a larger group.
 
For supply chains in the private sector where the end-client business does not meet the small companies’ definition, the legislation will apply.  This is the same legislation that’s already in place for the public sector, but with two interesting amendments:
 
1. Status Determination Statement. 

The end-client business must provide a statement confirming it has concluded whether or not IR35 applies to that specific engagement. 

This statement must be provided to the PSC worker and the party who directly engages the PSC. Until this has been provided, the end-client business will stand in the position of “fee-payer” (meaning they’re responsible for ensuring the correct tax and NI treatment) with all the potential liabilities to tax and NI.
 
2. Client-led disagreement process. 

The legislation introduces a mechanism for PSCs to appeal against an end-client decision.

The legislation imposes that if a worker or PSC provides representations that it disagrees with the status determination, the end client has 45 days to respond, along with its reasoning, and confirm either its original decision was correct or provide a new status determination statement. If the client fails to do this then, again, they will stand as “fee-payer”. 
 
Consultation on this legislation has now opened with the deadline of 5
th September 2019 and, as usual, we will be following it closely.

Where you have any doubts or concerns, we would recommend having your existing and future contracts reviewed by a contract review specialist and opening dialogue with your end-client well ahead of the impending changes.

If you have any immediate concerns or questions please contact us on 0121 778 6278.