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IR35

IR35 Developments

After years of back and forth controversy, tweaks to the rules, and delays, the controversial off-payroll working provisions were extended from the public sector to private sector companies on April 6, 2021.

Businesses and employees have a year to transition to the new off-payroll operating laws, during which time HMRC will not pursue fines. Instead, a ‘light touch' approach to regulation will be used to allow all the time and space they need to make the best decisions possible.​

New Developments

MP calls for end of umbrella employment companies.​

The Loan Charge APPG, which represents a cross-party coalition of MPs, has released a report on the How Contracting Can Work investigation, which revealed widespread non-compliance and malpractice in the supply chain by several umbrella firms and procurement agencies. ‘IR35/off-payroll regulation has been a strong factor in the growth and usage of unregulated umbrella firms and associated agreements,' according to the study, and the government should consider this and aim to introduce regulatory reforms that provide adequate and equitable tax certainty for freelance employees.​

Ruth Cadbury MP, is urging the government to withdraw Clause 21 from the Finance Bill, which essentially shuts down the umbrella industry. The unforeseen effects of IR35 off-payroll legislation has been an explosion of umbrella firms, some of which have forced people into veiled remuneration plans, Cadbury said in parliament during a debate on the Finance Bill. The APPG study also revealed widespread fraud, such as delaying holiday pay and paying kickbacks in exchange for endorsing or forwarding on contractors. They came to the conclusion that legislation, both inside and outside of this bill, was needed to balance employment and tax law. They said that the law as written required employees to be placed on employment agencies' books in order to demand holiday pay and other benefits. They proposed that the government remove clause 21 or rewrite it to make exploitation illegal. Schemes are also being mis-sold to NHS nurses and other clinical specialists, as well as IT and business services contractors, they argued. Some scholars believe that shutting down an entire industry that offers critical resources to the contingent workforce as a whole is an irrational response. Despite the fact that they agree with some of the concerns made by Ruth Cadbury and have been arguing with HMRC for years that restricting the ability of veiled remuneration and non-compliant operators to join the industry is critical.

Construction activity programs can be harmed by tax changes.

According to new research, more than half of construction industry executives are worried about the long-term effects of the IR35 tax reform that took effect at the beginning of this month. From 6 April, the responsibility for determining whether contractors are self-employed or employed for tax purposes transferred to the end client under IR35. Because of the ambiguity surrounding the law, end clients are being cautious when it comes to recruiting contractors, which has resulted in a substantial reduction in the talent pool open to them. According to research, 56 percent of managers agree that changes in tax law would result in a major skills gap, as end clients are more cautious when hiring contractors. According to a survey, 83 percent of construction managers agree the industry currently faces a skills shortage, and that IR35 could exacerbate an already difficult situation. It is difficult to predict the effect of amendments to IR35 regulations on the construction industry at this time. Companies who want a low-risk blanket ban on personal services companies, on the other hand, may have limited access to specific skill sets which is a great concern. Workers can even be panicked into PAYE while they may legally continue to work for a personal service company.​

HMRC has made changes to the off-payroll webinar script.​

An IR35 adviser who discovered 25 mistakes in an HMRC webinar on IR35 reform has traced directly small but potentially important successes over words and numbers. On two fronts, according to status expert David Kirk, who exposed the litany of errors in March, a version of the webinar held by HMRC last week because his critiques were more accurate:​

  • First, HMRC made a staggering error in calculating how much VAT a customer will have to pay an agency, which was made because HMRC forgot agency payments are often subject to VAT.

  • Second, the webinar no longer assumes that the Status Determination Statement(SDS) is a legal requirement, in addition to HMRC correcting a VAT measurement mistake.

'Once the client has decided whether or not the rules do apply, they must set out that decision in a status determination statement.' HMRC was criticised for saying so. The word "must" was replaced with "should" in the most recent HMRC webinar. And, according to Mr. Kirk, that is more acceptable because it no longer implies that you have a legal obligation because you don't.​

Business as normal

For the time being, at least, the private sector's introduction of the long-awaited off-payroll guidelines in April 2021 has guaranteed business as normal for recruiters, their employers, and contractors. Bad planning, a lack of understanding of the law, and the possibility of unknown legal consequences for those concerned are all factors that are still  a concern for all those who are concerned. However, once the dust has settled, there is a possibility that the contentious legislation will result in a more productive working environment. 

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