Currently, assuming the arrangement is outside the public sector, the intermediary is wholly responsible for ensuring that the IR35 rules are reviewed and the correct tax treatment is applied.
From April 2020, the ‘end client’ will instead be responsible for reviewing the status of each worker operating through an intermediary to determine whether the worker would have been regarded as an employee if they had been engaged directly.
The end client is the organisation in the labour supply chain that is ultimately receiving the worker’s services.
That decision must be communicated to the worker through a Status Determination Statement (SDS).
The worker has a 45 day right of appeal against the decision made.
Where the end client determines that the worker does fall within the IR35 rules, the responsibility for then applying the correct tax treatment to payments made to the intermediary will lie with the fee-payer; the fee-payer being the organisation paying the intermediary for the worker’s services.
Where the end client is not also the fee payer, the end client must send a copy of the SDS to the organisation they pay. Should there be an extended labour supply chain, that SDS must be passed down to the fee payer.
Already announced in early February, the report confirms that the new rules will only apply to payments for services provided by individuals via intermediaries on or after 6 April 2020.
Before this announcement it was understood that the new rules would apply to all payments made on or after 6 April 2020, regardless of when the related services were provided.
Where there are numerous parties involved, it will be important to determine who the end client and fee-payer are as they may or may not be the same organisation.
Understanding the supply chain will already be part of any Corporate Criminal Offence (CCO) process.
This requires companies to have reasonable procedures in place to demonstrate a defence against the CCO legislation.
Understanding the supply chain will also be crucial in terms of understanding the potential risk of any unpaid PAYE/NIC being transferred: the draft provisions give HMRC wide scope to transfer any PAYE/NIC debt arising under the IR35 reforms to potentially anyone involved in the supply of the worker.
Who will be affected?
From 6 April 2020 the new legislation will affect medium and large private sector businesses that engage workers operating through an intermediary.
The inclusion of private sector businesses in the scope of IR35 is an extension of the rules that have been in place for the public sector since April 2017.
