The IR35 regime will soon be upon us – are you prepared?
19 January 2021
It was a relief to many organisations and contractors that the new IR35 Regulations ("Regulations") which were scheduled to come into force last April were delayed on account of the Covid-19 crisis. Despite calls for them to be scrapped and a damning report on the legislation by the House of Lords, there is increasing concern that they will after all come into force. Given the need for the government to recoup the billions spent supporting businesses and other costs associated with the pandemic, is the Chancellor unlikely to ignore this source of revenue?
While the Government has promised a more detailed review of the impact of the changes before April 2021 which means it is still possible for last minute changes to be made but as yet we have not seen anything meaningful. Furthermore, the softly softly approach we were all led to believe the HMRC would adopt in the first year of the Regulations could well disappear. The IR35 reform has been estimated as raising £250 million in additional revenue in the first 12 months. Therefore there is every reason to believe HMRC will take an increasingly aggressive approach on any non-compliance when the Regulations come into force. So are you prepared?
Our previous articles (IR35 - Do you need to be worried? and Extension of IR35 Postponed) set out more detail about the Regulations and the steps that need to be taken to ensure compliance.
Many organisations have already done a lot of preparatory work and believe themselves to be well prepared. However, it is important not to be complacent and in this respect undertaking a review of what has been done so far should be carried out, if only to make sure it is still relevant given the changes to working practices, business operations and suppliers brought about by Covid.
Given the short time frame between now and April timelines for any remaining steps should be put in place and you should ensure your preparations are as good as they can be so you are not taken by surprise by any further developments between now and April, even if these may be unlikely. For example, are you happy your contracts with contractors, suppliers and clients have sufficient safeguards in them should there be any challenge by HM Revenue and Customs as to the status of a worker? You no longer have the luxury of time in which to test the water with those whom you contract to find out to whether they will accept any changes that need to be made to the arrangements you have with them, so well drafted contracts prepared by your legal advisers or having your existing contracts reviewed may assist in dealing with any concerns of those you contract with.
Many contractors have felt abandoned by the government during Covid-19 and in recognition of this they may well be more assertive and behave differently if they decide to continue working under off-payroll arrangements given the impact the Regulations present for their income. Retaining these individuals and their experience is likely to be a key factor for many end users. Whereas in the past many contractors have been willing to accept contracts provided to them for each assignment without taking legal advice, more of them are seeking legal advice and they may not be so willing and demand greater terms and reject an assignment if their demands are not met. Having regard to the pandemic they may also want assurances that their health and safety is protected even if the assignment is overseas or know what their position will be in terms of expenses if they end up being trapped in a lockdown or quarantined. The contractor may no longer be willing to trade off a greater reward on one project if their health and wellbeing cannot be assured or they end up being in a lockdown or quarantine and unable to work, not to mention the additional costs they have to bear.
Communication is key and depending on where you fit in to the supply chain you should by now have entered into a dialogue with not just your end user but also your contractors if only to get a feel for what needs to be done well in advance of any assignment. See our article published last July (IR35 has not gone away) on factors that need to be considered as part of your administrative and other arrangements.
It is clear that there is still a lot of ambiguity and uncertainties whichever part of the supply chain you are in, particularly on the part of the contractors themselves. Indeed, one commentator has remarked that the Covid-19 response is likely to be behind more than half of contractors being prevented from getting details off their clients on the private sector IR35 reform and have been urged in the media to start putting pressure on to find out what the strategy of clients might be as well as what they need to do in advance of the legislation. So we ask the question again, are you prepared and ready to respond meaningfully to your contractors? If you have not already started we recommend as a first step read the articles linked on this page and start taking the necessary action now.
If you need or further advice on what you need to do then Margaret Davis who is leading our team on IR35 matters will be able to assist.
