The private sector is still preparing for IR35, and so it has come as a blessing for organisations that with about eight weeks to go before the new tax regulations governing contractors come into effect, HMRC has decided to make changes to off-payroll rules.
What are the changes?
The new IR35 regulations were to apply to all payments made to contractors after 6th April, regardless of when the contractors performed the job, project or tax. However, with the changes, HMRC has clarified that the new IR35 tax reform will cover just those services that are performed on or after 6th April.
Many tax experts have welcomed this clarification as the previous rules were ambiguous and contactors and PSCs were not very happy. Any task, service or project performed in February and March 2020 and invoiced on or after 6th April will not fall under the new off-payroll tax reforms.
Why is IR35 worrying procurement?
Organisations have to assess whether their contractors (procurement interims and suppliers) are inside or outside the IR35 regulations. If a contractor is assessed as being inside IR35, they are treated as employees and would be liable to pay income tax and National Insurance on the entire amount for which they bill the company.
The responsibility for correctly assessing a contractor’s status lies with the end user, the company procuring the goods and services. Therefore, it covers the complete supply chain, making the company responsible for deducting taxes based on the assessment. If the organisation incorrectly assesses the contractor or does not comply, they will be liable to pay significant penalties and fines.
While procurement is racing against time to comply with the requirements of IR35, the concession by HMRC offers respite to contractors and procurement. They can now focus on ensuring complete compliance in supply chains by simplifying them and mitigating the risks. It will help procurement to partner with suppliers that have compliant, efficient and reliable supply chains.