Current status of the IR35 Tax Legislation reform
On March 17th 2020, all business’ IR35 road maps ceased, while the country prioritised more pressing issues.
After months of speculation any hope that the reform was going to be scrapped faded after MPs approved the 2021 delayed rollout in Parliament. Further development cannot yet be ruled out and we await clarity around the reform from the courts as the binding authorities release, yet it appears that the Government have made it clear it will be going ahead and that businesses should implement the changes required for the ‘Off-Payroll Working Rules’ reform on 6th April 2021.
Changes for businesses
Currently in the Private Sector’ tax status’ is determined by the ‘Contractor’ or rather the person providing the services. Private sector contractors assess and decide whether the IR35 Tax Rules apply to each of their contract engagements. The decision not only takes into account the written contract but also various other details, such as Mutuality of Obligation, Control and Financial Risk.
From April 2021 it will be the responsibility of the entity using the services of the worker, e.g. The ‘Client’, to make the tax status determination and whether IR35 applies.
The draft legislation also introduces the statutory concept of a “Status Determination Statement” or “SDS”, which clients will be required to provide down the supply chain to ensure that it is received by the worker. This SDS must not only include the decision of the client’s “deemed” tax status of the worker, but also the rationale for reaching this conclusion.
IR35 Projects and businesses
Due to the complexities of the reform, businesses should be clear from the beginning that their IR35 project will span across several departments including HR, Tax and Procurement. Usually these type of tax legislations sit outside of HR’s remit, yet as the reform changes the responsibility of making tax status determinations, this also requires a change in thinking. HMRC stating that businesses cannot adopt a ‘one size fits all’ approach along with the unfamiliar ‘Status Determination Statement’ cause further compliancy risks, therefore it is key that clear policies and procedures should be implemented, communicated and managed across the multiple stakeholders.
What does IR35 mean for r10, their associates and clients?
r10 is IR35 compliant. We provide outsourced services to our clients, therefore, under the new off-payroll working rules, r10’s clients will not need to make a tax status determination and the responsibility falls to r10 as the Consultancy.