Government’s draft IR35 legislation contains important changes

After much anticipation, the Government has now published its draft legislation for the off-payroll working (IR35) rules, which will be enforced in the private sector from 6 April 2020.

The latest policy document for the private sector shares a number of similarities with that already in force in the public sector.

However, it does introduce a few new changes which contractors and businesses should be aware of as they begin to prepare for the changes ahead.

It was already known that the Government intended to introduce some form of exemption for small businesses, but this has now been confirmed in the draft legislation.

This means that contractors engaged by a company classed as ‘small’ in a tax year according to the Companies Act 2006 will need to continue operating IR35 as they currently do.

The new legislation will also introduce a new term for hiring organisations to provide IR35 decisions, referred to as a ‘status determination statement’ (SDS), which must be provided by businesses to contractors.

This must include both a decision on IR35 and the reasoning behind it. Not providing an SDS will be seen as a business failing to fulfil its obligations, and thus the liability will sit with it until a suitable SDS is submitted to HM Revenue & Customs (HMRC).

To reduce the number of conflicts, the draft legislation has also confirmed that businesses will only have 45 days to consider and respond to any disagreements of a status decision with the reasoning behind their decision.

This differs drastically from the current system which allows a contractor to challenge the decision at any point via HMRC or through an appeal heard at Alternative Dispute Resolution (ADR) and/or judge at a tribunal hearing.

Links: Rules for off-payroll working from April 2020

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