Update: IR35 in the private sector

Off Payroll Legislation is due to come into effect on 6 April 2021. Given the recent impact of the COVID-19 pandemic, we are providing an update on the upcoming changes.

What has HMRC said?

There have been no significant changes to the Legislation. The End Client will still be required to assess the IR35 status of each engagement by producing a Status Determination Statement and flowing this down the supply chain. The Fee Payer will be responsible for deducting tax and national insurance before paying the PSC on those roles deemed inside of IR35. 

Though we are still waiting for the final regulations on liability, the recent guidance has provided some instruction about when they will look to recover unpaid tax and NICs and from whom. 

HMRC will not seek to recover from other persons where: 

  • The failure to account for tax and NICs by the person who should initially have paid it is as a result of a genuine business failure on the part of that person; and 
  • The person who should have initially paid it has not knowingly benefitted as a result of winding up without paying the tax liability. 

HMRC may recover from other persons in circumstances including, but not limited to: 

  • Where a promoter of tax avoidance or any other party has entered into the labour supply chain, or other similar contrived situations where the intention is to avoid the tax and NICs liabilities that would rest with the person who should have paid those liabilities; 
  • Where a client or first agency in the chain requires workers to provide their services by contracting through a particular party that is likely to have been chosen due to its non-compliance with the off-payroll working rules; 
  • Where a fee-payer/deemed employer liquidates where the intention of liquidation was to avoid the income tax and NICs liability due from application of the off-payroll working rules; 
  • Where a client or first agency in the chain knew, should have known or had reasonable grounds to suspect that the labour being supplied to them was supplied through a party or parties in the labour supply chain that did not comply, or had no intention of complying with the rules. 

The guidance is clear that end users will be expected to carry out checks on their supply chain to avoid these risks. 

Next steps

With six months before the Off Payroll Legislation goes live, now is the time to start getting all of the necessary processes in place to ensure that the supply of contractors remains uninterrupted. 

Contact us to discuss proposed addendums or changes to Terms and Conditions to incorporate the relevant new working practices and responsibilities. Our legal team is happy to assist in drafting and implementing these changes where needed.