Contractors’ clients get three-week window to sort IR35 status confidently
Big companies are going to be afforded only a few weeks to confidently assess thousands of contractors’ IR35 status, in a rush to get ready for April 6th, an accountancy firm is warning.
As the IR35 review and consultation both end in mid-February, giving HMRC 20 days to set the rules for Budget 2020 on March 11, it leaves clients ‘just three weeks’ to use them to assess PSCs, said AR Tax Accountants.
The firm reflected: “Since the [secondary draft IR35] legislation has got both the agency and end-client by the collar… [they] are in a bit of a difficult position, especially if they are large.
“[In short,] how is it going to be [practically] possible [for the larger organisations] to assess thousands of contractors within [just] a few weeks of the final legislation?”
'Taxman's clearer intentions'
Despite the characterisation of both parties being liable, Qdos points out that the end-client will not carry the liability when a fee-paying agency is involved.
“The arrival of the draft secondary legislation makes HMRC’s intentions even clearer… HMRC will seek any unpaid tax from the recruiter,” the status advisory says.
Its CEO Seb Maley added: “HMRC will also give itself the power to recover outstanding PAYE from ‘other relevant parties’…[so] the first UK-based agency in the supply chain or the end-client itself.
“Aside from complicating things further, this clause effectively gives HMRC free reign to chase tax payments throughout the supply chain if there is ‘no realistic prospect of recovering outstanding tax’ from the first agency.”
'Particularly unfair to recruiters'
A second IR35 expert Rebecca Seeley Harris doesn’t think it’s fair – to agencies. “HMRC will seek to recover from Agency-one in the UK first, and then the client.
“This does seem particularly unfair because Agency-one would not have been the fee-payer originally or the body that made the assessment.
"But when I was at an HMRC round-table [meeting] last year,” she continued, “it was clear that HMRC expected Agency-one to take steps to remediate the labour supply chain.”
'Supply-chain compliance will top the agenda'
One such agency, Evolution Recruitment Solutions, said: “[The secondary legislation] details how HMRC can recover unpaid PAYE debt from those further up the supply chain if there’s ‘no realistic prospect of recovery.’”
The recruitment agency’s head of compliance Jeni Howard added online: “Supply chain compliance should be at the very top of [every] client’s agenda.”
A tax dispute specialist confirmed: “This secondary legislation should make hirers look as closely at any party [they engage]…as they do limited company contractors, except in the unlikely instance that the IR35 reform review changes that”.
'Chicken and Egg situation'
Another expert in HMRC enquiries remarked on the IR35 review being announced to conclude in mid-February, shortly before the consultation on the draft was also announced to conclude in mid-February.
“At the very least, we should call this timing ‘interesting,’” the expert said. “But releasing a legislative consultation [like this] begs the question of how the release sits with the ‘review’? It rather smacks of a ‘chicken and egg situation.'”
Meanwhile, despite the concerns about confident IR35 status assessments being rushed for having to be made inside of 26 days, Morrisons, EasyJet and Toyota are three big brands to internally announce that they are assessing their contractors’ IR35 status already and individually, on a case-by-case basis.