On 12 July 2019, the government published draft legislation outlining reforms to IR35 in the private sector. The new rules broadly mirror the reforms introduced to the public sector in April 2017.
From April 2020 in the private sector, large and medium sized firms (as defined by the Companies Act (2006)) will have the responsibility to determine the IR35 status on projects where they engage a contractor operating through their own limited company (or corporate entity).
If the large or medium sized private sector firm determines that IR35 applies to the engagement, the entity paying the contractor’s limited company, known as the ‘fee payer’, will be responsible for deducting and paying the PAYE and NI contributions on the total value of the assignment income paid to the contractor’s limited company.
The fee payer could be the medium or large sized private sector firm if the limited company contractor has engaged with them directly (i.e. there are no other entities in the supply chain), or it could be an agency who has placed the limited company contractor with the end engager if they sit within the supply chain, which is often the case.
“We’re disappointed to see that many of the key concerns raised by the contractor community have been overlooked with this draft legislation. It now appears unlikely that there will be a shift in the policy or plans to implement these reforms in April 2020, and the big question for the industry is will businesses be ready in time to implement these changes without unintended consequences?
“If not, there is a strong likelihood that incorrect decisions will drive up costs and reduce the valuable skills needed on a contingent basis by clients throughout the UK.
“Across the industry, there is still a distinct lack of understanding about the new rules – from contractors to recruitment agencies and end clients. There are still question marks hanging over the reliability of government’s CEST tool and if it can really make the necessary changes needed to provide accurate assessments in line with case law, as well as delivering planned education on how to prepare businesses in time.
“Across our business, we’ve been working hard to help our agency partners and contractors and their end clients understand what these changes mean in practical terms and to provide them with all the support they need to navigate these changes successfully.
“Whilst we welcome and support any efforts to drive compliance, safeguarding the interests of true contractors and freelancers is absolutely vital to the UK economy. There is a very real risk that access to skills will be severely limited if people choose to turn their backs on contractors because of these changes.”