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PayStream’s reaction to the draft legislation

Julian Ball

Julian Ball | Legal Director

Monday 15th Jul, 2019

Last week’s publication of the draft Finance Bill 2019-20 confirmed that off-payroll working in the private sector will come in from April 2020.

Despite many and varied representations the Government has stuck to its belief that bringing the freelance contractor into the PAYE system is the right thing to do as far as the scope of fair and equitable taxation is concerned. It has steadfastly refused to acknowledge the true value of a flexible workforce even in the face of all the economic uncertainties which the country is facing.

The latest tranche of legislation brings an almost identical approach to the application of IR35 to that used two years ago in public sector contracting.

The end client plays a pivotal role

The role of the end- client remains pivotal in as much as it is the client which is required to carry out a ‘status determination’ as to whether an assignment and contractor fall inside the IR35 rules.

Letting everyone in the direct supply chain know of the status determination of a contractor is fundamental to the effective application of the new rules.  With the new rules coming in from April 2020 there has been much concern that end-clients had insufficient time to prepare their processes and people to carry out these checks accurately, which could lead to blanket determinations (as happened in the public sector).

At least there is now an acceptance, in the proposed legislation, that a contractor is entitled to make a representation to the client on the decision. This is allied to a requirement for the client to respond, with full reasoning, within 45 days.

The positives

One positive element of the proposed legislation is to leave out the requirement for the end-client to operate the new rules if they are ‘small’, a concept defined mainly by the application of the definitions in the Companies Act. The Finance Bill outlines in some detail how the ‘small’ criteria is used for new companies and those transitioning to ‘medium’ or ‘large’ which will be within the scope of the new rules. As is usual with these ‘grey’ areas there are anti-avoidance rules which come into play.

Tackling non-compliance

Most in the industry were anxious to learn how issues of non-compliance within the supply chain would be handled in the legislation. The expectation was that liability would pass up the line. This has been borne out by a far-reaching provision enabling HMRC to go after any person who was ‘party to the arrangements’ in which a payment was made in the event that PAYE/NIC cannot be collected from the appropriate entity. This includes end clients and the PSC.

CEST to be improved

In an effort to appease or support the industry, HMRC has undertaken to review and improve its online CEST tool which has been criticised since its launch. The issues with CEST can be seen in the increasing number of status cases it is losing before the Courts.

Given the unreliability of CEST, clients are looking for alternatives.  We offer an IR35 review service, IR35 Comply, which enables you to manage IR35 throughout your supply chain via our unique IR35 portal.  Our innovative portal is quick and easy to use, shares information throughout the supply chain and is supported by our internal team of IR35 experts.

Also, if you’re looking for insurance in respect of IR35 risk, several insurers are offering this but on the condition that an independent IR35 review is completed from an approved IR35 expert, such as PayStream.

What does the future hold?

The industry was expecting what has transpired and there was nothing completely unexpected. That said, a lot of people have held off taking any positive action until the legislation was published. We now expect to see a sharp increase in the demand for IR35 advice from both agencies and contractors and of course we are here to help!

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Related articleOff-payroll working in the private sector is confirmed for April 2020

We now have the details of the Government’s proposed legislation following the publication of the draft Finance Bill 2020 earlier today. The legislation is largely as discussed in the consultation document and very similar to the off-payroll rules in the public sector. It will be subject to scrutiny and possible change as it makes its way through Parliament to become the Finance Act.

Read more here
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