On Friday, 23rd September, Kwasi Kwarteng, Chancellor of the Exchequer, announced during his “mini-budget” the government’s intention to repeal the off-payroll reforms to IR35.

Andrew Webster, MD of Workwell Enterprise, explains what this means for recruitment businesses & end hirers between now and April 2023.

What does the announcement mean?

The repeal means that in all circumstances where a private or public sector end client is currently responsible for producing an IR35 status determination, this responsibility will shift back to the director (contractor) of the PSC from 6th April 2023.

Further guidance on the repeal is expected over the coming months from HMRC, as there are a number of complexities to be considered and answers provided to ensure that all stakeholders in the Labour Supply Chain are clear on their responsibilities and risk in the context of their business and the markets they serve.

What should end clients be doing now to prepare?

The existing IR35 Off Payroll Rules still apply; therefore, ALL existing responsibilities to meet Reasonable Care and produce an SDS remain, and the potential risk for non-compliance remains. Therefore, continue following ‘whatever’ IR35 compliance solution – to include systems, processes and controls in a BAU status.

• Continue to follow your processes to create and issue a compliant ‘Status Determination Statement’ (SDS), which genuinely reflects the working practices followed in your business when engaging contractors via a PSC.
• Follow ALL HMRC Guidance on meeting Reasonable Care, creating and issuing a compliant SDS in the expected time frames and recording and saving ALL evidence of compliance.
• Do not halt or pause any compliance processes or remove resource within your organisation currently deployed to facilitate and manage IR35 responsibilities.
• Speak with your recruitment partners to confirm your policy of ‘ongoing compliance’ for IR35 purposes, and continue to document all evidence of such compliance
• Have clarity on what possible enforcement action may take post 6th April 2023 changes, specific to the ‘Statute of Limitations’ rule contained in HMRC CH52100 and 53300 – HMRC can investigate up to 6yrs for tax loss purposes after the changes to IR35.
• Start planning for the changes NOW; seek independent and expert advice to understand and consider options to ensure any risk is mitigated from 6th April 2023, where there will be an indirect risk to you under IR35.

What should recruitment businesses be doing now to prepare?

The existing IR35 Off Payroll Rules still apply; therefore, ALL existing responsibilities to meet Reasonable Care and receive, review and accept an SDS remain, and the potential risk for non-compliance remains. Therefore, continue following ‘whatever’ IR35 compliance solution – to include systems, processes and controls in a BAU status.

• Do not make any ‘knee jerk’ changes to policy or processes aligned to your recruitment and onboarding processes; remain in a state of BAU right up until 6th April 2023
• Retain ALL records and evidence of compliance for IR35 Off Payroll purposes, especially Status Determinations Statements (SDS) received from your end client
• Maintain your processes and management of an Appeals Process in line with HMRC expectations
• Create and distribute communication to to your ‘front end’ recruitment consultants, re-iterating that the IR35 Off Payroll rules still apply and all internal processes to recruitment and onboard a PSC contractor should be adhered to.
• Reaching out to end client customers to understand their immediate thoughts and plans post repeal announcement

IR35 April 2023 and beyond

If the current IR35 Off Payroll rules, for both Private and Public sector are repealed, putting all responsibility for compliance and determining employment status for tax purposes on the director of the PSC (the contractor), then there are certain points that should be considered.

It is very likely that further guidance from HMRC will be published over the coming months, providing detailed clarity to some of the complexities and nuances post repeal.

What should end clients consider?

Retain all policies, procedures and evidence of meeting Reasonable Care and compliance to the Off Payroll rules in readiness for possible HMRC engagement under the ‘Statute of Limitations’ rules.

• Retain all copies of ‘Status Determinations’ that you produced and distributed to your recruitment partners, being the Fee Payer.
• Retain all documentation pertaining to cases of ‘Appeals’ made by the PSC regarding status
• Have absolute clarity across your business of ‘how exactly’ contractors providing services via a PSC are treat on a day-to-day basis – removing any indirect risk of disguised employment
• Seek independent technical support and advice, to review ALL processes, systems, controls, platforms and outcomes implemented to meet the Off Payroll rules for the period 6th April 2021 – 5th April 2023. This is to identify any possible ‘gaps’ leading to risk, in anticipation of future HMRC engagement.
• Review all contracts in your labour supply chain to reflect the legislative change and, where appropriate amend clauses pertaining to IR35 Off Payroll rules
• Have clear policy and guidance for what type of services you would accept form your recruitment partners, where for Off Payroll purposes the ‘role’ was deemed to be inside IR35

What should recruitment businesses consider?

If the current IR35 Off Payroll rules, for both Private and Public sector are repealed, putting all responsibility for compliance and determining employment status for tax purposes on the director of the PSC (the contractor), and NOT the agency as the Fee Payer then, there are certain points that should be considered.
Retain all copies of ‘Status Determination Statements that you received from your end clients and, where you either agreed or disagreed with the determination.

• Retain all documentation pertaining to cases of appeals
• Review all contracts in your labour supply chain to reflect the legislative change and, where appropriate amend clauses pertaining to IR35 Off Payroll rules
• Have clear policy and guidance for what type of services you would supply to your end client customers where for Off Payroll purposes the ‘role’ was deemed to be inside IR35
• Ensure that there continues to be effective policy and controls to mitigate any ‘incentives or bribes’ from accountancy providers to consultants for PSC leads
• If not in place, consider introducing an Umbrella PSL to ensure that no ‘tax evasion’ solutions post 6th April are being accessed by contractors or promoted by consultants

To discuss the repeal to IR35 reform in more detail or to get in-depth advice & support, contact Andrew Webster.

[email protected]

07827 810851