Guidance from the Autumn Budget shows that the most likely addition to IR35 from April 2020 is the end client of a worker will now have a responsibility towards determining IR35 status.
This agenda is being headlined by HMRC and following further ‘consultation’, clarity will be provided prior to a start date in April 2020. In practice, the law is
likely to make it that IR35 will be assessed by reference to 3 factors:
1. The manner of treatment of the worker by the end client
2. The contractual terms between the parties (are they employment or self-employment?)
3. The business conduct of the worker
Steps 2 and 3 are already established criteria for higher quality advisors in the contractor accountancy space. They are not likely to see much adjustment as to how employment or self-employment status is determined.
Step 1 has until now only been considered during an IR35 tax investigation, whereby the end user is brought before HMRC to assist in the status decision. We can therefore expect this to be extended as a pre-determinant of the IR35 burden of a contract.
Although early headlines are that step 1 will only apply to large and medium size companies, it does in effect apply to all contractors including those working for smaller end user clients. All PSC workers would be advised to check the client assessments of the relationships prior to sign off of agreements.
Putting step 1 into practice will mean that those clients who want an employment type relationship with their contractors will work in a manner where there is a high degree of supervision in the way that the worker does the job, will manage them through HR, will provide appraisals to the worker and various other employee benefits and social interactions. These are all the factors that point towards the bond of employment, and accordingly will face the higher taxes of IR35 deemed employment.
Those clients that do not want a deemed employment in place are likely to treat their PSC workers through a procurement supply chain, insist they have their own business insurances, are not guaranteed any payment if there is no work available, rely on the workers skill in performing the contract and that they are not assimilated into the employment aspects of life at the client site.
Workers will continue to have a large part to play in determining the relationship and the tax burden from 2020 and are likely to need evidence of their considered or advised IR35 status if they believe they are not caught by that tax regime.