UK Business prepares for IR35 changes

Private sector businesses are starting to prepare for a significant change to IR35 regulations affecting businesses that engage sub-contractors, due to change in April 2020.  When the plans were announced, the Government included a caveat that the revised IR35 rules will not apply where the business is ‘small’ but, it is not yet known how the government will define ‘small’.

In order to determine the status of the individual, who provides sub-contracting services, HMRC has stated that it will continue to use the online CEST (Check Employment Status for Tax) tool, but has stated that it will work with stakeholders to improve the tool and to give further guidance before the reform comes into effect in April 2020.

One of the main problems with the CEST tool is that it relies on the person using it, to have information from the sub-contractor. The person inputting the information on the “client site” often will not have specific information from the contractor and will therefore be unable to determine the true status. In a recent unreported case at the Employment Tribunal, the judge is said to have criticised the CEST tool and disputed its findings.  Essentially the tool is expected to be used to allow a client to determine if someone providing services is genuinely self-employed or if they are a “worker” and therefore entitled to be paid for holidays and receive other employment benefits.  The changes will increase the compliance burden and HMRC will have to work closely with businesses to ensure that their tool provides clear guidance.

A further consultation is expected on the details of the changes, expected to be published in Summer 2019.