IR35. If you know what the code refers to, you’re probably stifling a little groan. If you don’t, then I have the narrative role of explaining that IR35 legislation seeks to allow HMRC to demand that individuals who are ’employees in all but name’ as treated as if they are an employee (rather than self-employed) by being required to pay tax through an PAYE payroll system operated by a company/business/organisation.
Now, that definition is a bit wishy-washy. How can an individual not be an employee on paper but be treated as an employee for tax purposes (especially if they have signed a document stating expressly that they AREN’T an employee)? Well, put simply, if an organisation seeks to take on an individual by not directly employing them by standard means (i.e. by way of a Contract of Employment and putting them on the organisation’s PAYE payroll) but, instead, by creating a chain of companies (i.e. the individual works for an agency, which subcontracts to one company, which then contracts with the final organisation), HMRC will consider whether the individual is, in fact, to be treated as an ’employee’ of the end user or one of the companies in between.
So, to expand upon this example, if the individual is a cleaner and they work for a cleaning agency, which subcontracts to a management company, which provides cleaners for “Snoopy and Woodstock Limited”, HMRC will consider whether the individual qualifies for being treated as the “employee” of the end user (i.e. Snoopy and Woodstock Limited) or one of the companies in between. Now, if that sounds potentially complex, that is because it is! The issues of dealing with chains of companies, sometimes set up to try and disguise the true number of individuals working for one sole company, are large. Some companies may want to keep their staff ‘number’ below a certain figure and/or want to have the flexibility of ending contracts with other companies (rather than having to dismiss individuals themselves and potentially incur the risk of Employment Tribunal action).
But why are HMRC interested in this situation and the structure of how the individual performs their job? Well, the main (and easiest form) of collecting income tax and national insurance contributions is by way of PAYE payroll systems put in place by companies and HMRC are loath to allow individuals who aren’t described as an employee on paper, but otherwise act in the same way as an employee, to declare themselves as being self-employed and not paying tax by the usual route.
There is an additional complication in this by way of employment law having a slightly vague definition of the difference between an employee, a worker and genuinely self-employed. We’ve seen a lot of additional case law on this within the last 18 months by way of cases brought by individuals working for Uber, Deliveroo, Addison Lee, Pimlico Plumbers and more but going into that rabbithole would lengthen this blog three-fold and there is plenty of comment on this within our other blogs here, here and here.
And now, despite confirming the launching of a review on the legislation within the last week, HMRC have confirmed that the review itself will have ‘no effect’ on that legislation (basically, they will make whatever changes they wish to the legislation regardless of comments within the review). The obvious question? What’s the point of holding the review?!
And so, it appears that companies may have just a few months (and, in reality, around 14 weeks) to make sweeping reforms to their payroll at a time when many companies are already concerned at the uncertainty within the economy and/or Brexit uncertainty (and I’m sure the reader can take a view as to whether they believe those two things are linked or not). Just as a cherry on top, however, there isn’t too much point in me confirming the planned changes to IR35 here because the Government have confirmed that final legislation won’t be revealed until 11th March 2020 (the date of the Budget) and is subject to change. So it could be that some aspects of planned changes are altered or toned down (or dropped altogether) and that businesses will, in reality, have less than 4 weeks to implement any concrete changes in payroll process.
Put simply, it seems that the Government are happy to continue embracing a ‘last minute’ culture in terms of legislation and then leave it to companies (and individuals with uncertain employment status) to quickly try and comply in a very short period of time. For now, everyone has no real choice but to see what a highly unpredictable Budget brings on 11th March 2020…