On 6 April 2021, IR35 changed massively in the private sector. If you are a large engager in this sector (in very general terms, if you have turnover greater than £10.2 million), it is now your responsibility to determine whether your engagement with a personal service company or partnership client is caught under the realms of IR35.
My understanding is that there are approximately 60,000 end clients that are affected by these new rules!
But what have I discovered from speaking to delegates, clients, and accountants in industry regarding these new changes, four months in?
Many large end clients still seem unprepared for the new IR35 private sector rules, despite the 6 April 2021 starting point having passed. Additionally, some large engagers have decided not to use PSCs at all. They prefer to engage personally, on a fixed term employment contract. Some have engaged the workers as agency staff.
In general, there has been a mixed reaction. We have though seen some larger engagers engage directly, apply IR35, and deduct the PAYE and NIC, as obviously they should do! However, they have been trying to recoup the 13.8% Employers’ NIC and very few PSCs have been able to negotiate increased rates of pay, in order to mitigate the extra tax and NIC deducted.
Additionally, in our experience in the last few months, some large end clients have not issued the status determination statements that they should have done! The large end client must issue a status determination statement where relevant.
Some large engagers are taking out insurance policies which will cover both the defence costs of dealing with an HMRC IR35 investigation, and also cover the potential tax and NIC loss if HMRC are successful in overturning the position.
Alternatively, some large engagers are trying to pass on any potential IR35 tax and NIC liability as a “contractual liability” through warranty clauses inserted into the contract.
Since 6 April 2021, we have seen end clients propose that the status of the contractor they are using must be regularly reviewed by a third party IR35 specialist. The end client expects the cost of the review on each occasion to be met by the personal service company. The costs are quite high and apparently the end clients have told the intermediary that unless they meet these review costs, they will not be allowed to continue to be kept on their supplier list.
We are operating in very interesting times and all the while, in the background, HMRC continue to take high-profile IR35 cases to court.
Written by Tim Palmer ABG’s Tax Consultant