In IR35

The publication of the Government’s Finance Bill earlier this week has been welcomed by Umbrella Company trade association the Freelancer and Contractor Services Association (FCSA).

The Bill contains some significant amendments, which have now been endorsed by both the FCSA and the Association of Recruitment Consultancies (ARC). Both organisations expressed measured satisfaction that HMRC has listened to at least some of their concerns about forthcoming reforms to IR35 legislation that will affect thousands of contracting professionals working for public sector bodies (PSBs).

The FCSA noted that the amendments have carved out the Managed Service Company (MSC) legislation that was originally included in the reformed IR35 plans. This means that the intermediaries responsible for processing contractors’ pay will be able to operate PAYE and NICs under Chapter 10, removing the risk of transfer of debt provisions that would have arisen if MSC legislation had applied. In other words, experts who have been providing invaluable payment processing services will be able to continue to do so without fear of penalty.

Additionally, the FCSA welcomed an amendment obliging PSB hirers to provide their determination regarding a contractor’s IR35 status far earlier than the 31 days originally proposed. Should a PSB fail to take due care in determining IR35 status, it will now become the feepayer and assume responsibility for operating PAYE and NICs for all assignments falling within IR35.

Contractors operating via personal service companies (PSCs) also have a new duty under the amended Bill: they will now be obliged to supply information to the feepayer concerning their set-up and declare whether IR35 applies to their company. In the absence of this information, HMRC will assume that IR35 does apply, thereby assisting hirers and feepayers in assessing IR35 applicability more accurately.

FCSA CEO Julia Kermode said: “The changes appear to be positive, and we are pleased that HMRC has listened to FCSA’s concerns and made appropriate amendments to the Bill. It will be interesting to see how the new legislation works in practice, particularly on the onus of the public sector hirer taking reasonable care when it comes to determining status, and if any public sector bodies will become the feepayer in reality. Notwithstanding, this provision is good news overall, as it should avoid ‘wholesale’ approaches of hirers deeming all contractors to be inside IR35.”

However, Ms Kermode pointed out that the impact of the changes, now only a fortnight away, will still be significant. She reminded HMRC that if they had properly enforced the original IR35 legislation over the last 17 years, then the new reforms would not be necessary.

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