This article was updated on 31 July 2020 to reflect confirmation that IR35 rule changes will take effect from April 2021.
What are the new rules regarding status determinations and the status disagreement process?
On 22 July 2020 The Finance Bill 2019-21 received Royal Assent confirming that the new IR35 legislation will apply to services provided on or after 6 April 2021. The new legislation also confirms that end users of services via intermediaries, such as Personal Service Companies (PSC), will be required to make status determinations and pass these to both the worker and the party that they contract with, for example an agency. It has been confirmed that these new obligations around status determinations will commence for Public Sector end users where payments (as opposed to services) are provided on or after 6 April 2021.
The end user client will also be required to set up a status disagreement process, with strict deadlines imposed, which will increase the administrative burden for businesses.
Requirement to provide a status determination statement
The new legislation confirms that end user clients will be required to provide a status determination statement to both the worker and any third party such as an agency, that it contracts with. There will be a requirement for the statement to show whether a particular engagement is regarded as in or outside of the rules and the reasons behind that conclusion. There will also be a requirement to apply reasonable care when reaching the determination.
End user businesses will need to ensure that they have appropriate processes in place to make and pass on the status determination statement to both the worker and any third party that they contract with. The legislation confirms that if this obligation is not met then the end client will take on the responsibilities of the fee payer (for example to operate PAYE/NIC if applicable).
The legislation also confirms the position if an end user has previously provided a status determination statement and then becomes a ‘small’ business and, therefore, exempt from applying the new rules. In this situation, the end user must issue a statement to the worker and any third party advising of this and the earlier status determination statement will be withdrawn from the start of the next tax year. In this situation, the PSC will be required to self-assess as per the existing rules.
Requirement to set up and operate a status disagreement process
The new legislation confirms that the end user client will be required to set up a status determination disagreement process which will further add to the administrative burden for medium and large businesses. The Government have stated that the end client is best placed to resolve status disagreements in real time as they believe that the vast majority of end clients have HR or procurement functions that will be able to make determinations.
Specifically, the legislation states that if the worker or the third party make representations to the client claiming that conclusions in the status determination statement are incorrect, the client will be required to respond within 45 days of receipt. Failure to do so will mean that the end client will potentially be treated as the fee payer and will be responsible for PAYE/NIC.
Under the status disagreement process, the end user client will need to respond within the 45 day time frame informing the worker or the third party of the outcome of its considerations. If it is concluded that the original determination was correct, it must provide the reasons why it believes the original determination was correct. If on review it is concluded that the original determination was incorrect, the end user will be required to issue a new status determination statement to both the worker and the third party.
In order to be compliant with these obligations, clients will need to ensure that they have robust processes, procedures and controls in place to both meet the obligations in respect of the initial determinations and in order to respond under a status disagreement process within the required timeframes. Failure to do this will result in liabilities for the end user. End users will also need to implement training to ensure that employees responsible for these obligations have the appropriate skills and knowledge.