The IR35 legislation has remained largely unchanged since its implementation in 2000. In recent years since the introduction of the OTS (Office of Tax Simplification) however, there have been a number of amendments in a bid to improve the legislation’s effectiveness. Below we outline the key IR35 updates since 2000...
As of 6th April 2021, IR35 reform, otherwise known as off-payroll working, has been extended to the private sector. Meaning that the new off-payroll working rules will be applicable to those engaged to large and medium-sized businesses only. Small businesses are exempt and so contractors engaged to such businesses maintain responsibility for their IR35 status. Find out more.
From April 2017, public sector workers were no longer responsible for applying the IR35 rules. Instead, the responsibility was placed on the end client to assess employment status and the fee-payer to make payment of applicable taxes. HMRC developed an optional online IR35 tool to assist the engager in making these decisions. Qdos worked with key parties to develop a practical and compliant process which help both agencies and contractors with this amendment.
PSCs will no longer be able to claim travel & subsistence expenses if IR35 applies. This means that if investigated with regards to the IR35 legislation and eventually found to owe HMRC, liabilities for expenses in respect of travel & subsistence will also be owed, increasing the financial risk of IR35. Find out more here.
The Business Entity Tests (BETs) introduced in 2012 were criticised by many leading authorities as unhelpful, with the majority of genuine contractors finding themselves in the higher risk bands. Many were misusing the tests to determine their employment status as was a natural response to the guidance. Taking note of the dissatisfaction with the tests, HMRC have now removed them with no plans to reissue a new version. All investigation-free guarantees previously issued will still be honoured.
The 2013 Finance Bill introduced an amendment to the legislation specifically targeting those who hold office positions in their end client’s organisation. An “office holder” is considered as someone who holds a “permanent, substantive position which had an existence independent from the person who filled it, which went on and was filled in succession by successive holders.” This will mostly include interim managers who take on management roles in their client’s business. If you hold office duties at your end client’s organisation, then you will need to apply IR35 for tax purposes under these rules. Click here for more information on the office holders provision.
Contractors who are engaged with an end client in the public sector, including bodies such as the BBC and NHS were affected by this amendment. If your end client is in the public sector, you have a contract for a duration of six months or more at a rate of £220 per day or higher, then you will be required to provide your client with assurance that you are applying IR35 correctly. If your client is not satisfied with the assurance you have provided, they may pass the information on to HMRC for further investigation. Assurance must be provided within 20 days of starting or renewing a contract, and failure to provide satisfactory assurance, may lead to termination of the contract. Qdos have developed a review package specifically for public sector workers.
In a bid to assist contractors with understanding the IR35 legislation, HMRC have released the Business Entity Tests (BETs) as a tool for self-assessing risk of investigation from HMRC. The tests work on a point scoring basis, amounting to a level of risk. If found to be low-risk, a contractor could be guaranteed a three-year investigation-free period if they can provide satisfactory evidence to support their test results.
The IR35 Forum was introduced in response to the 2011 Budget and met for its first formal discussion. The Forum consists of status experts, industry bodies and HMRC representatives. The Forum meetings can be expected to engage conversation on concerns with the legislation, administrative advice and debate for improvements in an overall effort to improve the legislation. All previous meetings can be accessed here.
A crack team of tax experts and treasury officials were appointed with the task of reviewing the IR35 legislation, as the new Office of Tax Simplification (OTS). The OTS put forward to either abolish the legislation or improve its administration. The government, however, could not bring themselves to do away with the legislation, so the OTS will set to simplifying the legislation, improving efficiency and developing guidance.
The Intermediaries Legislation, nicknamed IR35 for the press release number it was announced on, came into force, setting the scene for the next decade of enquiries and confusion over the rules.
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