IR35 Consultation - The Good, The Bad and The Ugly
Thursday, 18th August 2016 was the closing date for responses to HMRC’s latest proposed overhaul of IR35 for ‘Personal Service Companies’ (PSC’s) supplying to the Public Sector.
As part of the proposal, HMRC are planning to introduce a new interactive questionnaire, with questions in plain English, that will help to determine the correct IR35 status. The plan is that this will replace the defunct Employment Status Indicator from HMRC’s website. When a check is done, based on the details of the assignment, then a code would be generated which could be used to prove the result, in the event of a status enquiry. The key point would be that anyone using the tool would need to answer the questions based on the reality, not simply the contract.
HMRC’s proposal assigns responsibility, and crucially any liability, to the party up the contractual chain from the PSC. In the majority of cases this is likely to be a Recruitment Agency that wouldn’t necessarily know any of the practical details relating to the assignment which could affect IR35 status. This would make them reliant on information supplied by the client and the Limited Company Director that may not be accurate or complete. Especially if they know they’re ‘off the hook’!
The proposal suggests that if the Limited Company contractor was ‘caught’ by the revised IR35 rules, then the next party up the contractual chain would be responsible for operating full PAYE deductions on the payment that would have been received by the business. This could pose a number of very serious technical issues for genuine businesses, such as operation of pension schemes. Or, what happens if the Director is also having deductions under the Construction Industry Scheme (CIS)?
Whilst some of the concepts put forward in this consultation show that HMRC are keen to simply IR35, which is difficult for workers, agencies and clients there is some key detail that will need to be resolved.
For more information, please contact OBK Tax on 01252 704 030 (option 4).