Secondary draft IR35 laws were revealed last Wednesday, with the “technical detail” provided prompting experts to conclude that the legislation is “going ahead no matter what, from April 6th.”
Julia Kermode, CEO of the Freelancer & Contractor Services Association, said: “[The draft] states that the primary legislation for the off-payroll changes will be contained in the Finance Bill 2020. In other words, the changes are coming anyway despite the current ‘review’, [which] really is pointless and just paying lip-service to… [chancellor Sajid Javid’s] pre-election promise.”
The content of the draft outlines how HMRC will go about collecting unpaid tax from a supply chain under the off-payroll working rules. Initially, HMRC will require the given limited company contractor’s agency to pay any PAYE/NIC liability to HMRC within 30 days. But the off-payroll liability will then switch from top agency to the end client if, in HMRC’s view, there is “no realistic prospect of recovery”. However, if the agency suffers “genuine business failure”, then this debt transfer will not occur.
Ms Kermode commented: “It’s therefore sensible for clients to do their due diligence on their supply-chain to ensure that the [top] agency is both compliant and financially robust”.
Tom Cooksey of ir35io echoed this statement, saying: “The new draft legislation puts huge emphasis on the fact that HMRC will pursue the whole supply chain if there’s no realistic chance of recovery at the top … This will require proper workflow, evidence of compliance on all parties and demonstrable ‘reasonable care’.”
Carolyn Walsh, a former tax inspector, says the draft legislation should, in practice, “totally remove unknown and untested umbrella companies … from the marketplace”. She explained that this is because, given HMRC’s expectation that end clients will switch contractors to third-party feepayers, such as umbrella companies, the end client will be keen to ensure that umbrella company’s compliance so that no PAYE debt is transferred back up the supply chain to them.
Status expert Rebecca Seeley Harris also urged end clients and recruiters to “think twice about who the fee-payer is” so they don’t “get lumbered with a large debt”, commenting: “It is no surprise that HMRC have been given the power to recover the unpaid PAYE debt from a third party – also known as a ‘relevant person.’ And so I think it highly likely that some large agencies are going to get stung by some unscrupulous fee-payers. But this is all part of HMRC’s plan … to clean up the labour supply chain”.