Budget 2020 | IR35 changes confirmed, attacks on tax avoidance

1. The private sector IR35 reforms will proceed

The reforms will be legislated in Finance Bill 2020 and implemented on 6 April 2020, as previously announced. Users and suppliers have 17 business days to get ready (in reality less, given they will need to be ready this month).

Many users and suppliers of contract workers are focussing now on:

• Getting it right! The recent announcement that penalties will not apply for breach in 2020-21 is scant consolation because the underlying tax liability and interest will still apply in that period, and if you get it wrong you may get a very large bill in a couple of years when HMRC start to issue their assessments.
• Whether blanket bans of Personal Service Companies might actually lead to greater commercial cost in some cases than the tax risk that is in theory avoided by the ban.
• What the Status Determinations Statement actually needs to say.
• How to assess whether a contractor is inside IR35 or not. What are the really important factors, and which ones will HMRC not really care about so much?
• Whether the HMRC CEST tool is reliable or whether they should use a third party tool? If they use a tool backed by insurance, is that reliable and will it trigger MSC tax risk?
• Minimising the risk of retrospective tax claims for contractors. HMRC have announced a policy decision only to use assessments from 6 April 2020 as evidence in retrospective claims against contractors where there has been "fraud or criminal behaviour". The "or" is interesting, suggesting that any intentionally deceptive statement in the past by contractors regarding their IR35 status may (even if not qualifying as tax evasion) mean that an earlier assessment may be reopened.
• Minimising the risk of employment claims by contractors found inside IR35. There are some simple steps to take to minimise this risk.

2. Extension of sick pay rules during the Coronavirus epidemic

Staffing companies are trying to work out if and when the new provisions will also apply to umbrella agency workers.

3. The increase in the NICs employers allowance may make mini umbrella schemes (which many including HMRC consider to be unlawful) more attractive

It is likely that some contractors will be attracted by these schemes if found inside IR35 from 6 April. Staffing companies and end users of contract workers will need to check criminal tax evasion is not taking place in their supply chain.

4. Attack on CIS misuse – will this attract people to umbrellas?

There are plans to tackle Construction Industry Scheme (CIS) abuse. The government says it will legislate to prevent non-compliant businesses from using the CIS to claim tax refunds to which they are not entitled. The government is also publishing a consultation which introduces options on how to promote supply chain due diligence.

5. Loan Charge Review

The government notes that disguised remuneration schemes continue to be used. Therefore, the government will shortly issue a call for evidence on further action to stamp out these schemes. It is likely that, notwithstanding all the recent adverse publicity, some contractors will still be attracted by these schemes if found inside IR35 from 6 April and staffing companies and end users of contract workers will need to check that criminal tax evasion is not taking place in their supply chain.

6. Beefing up the enabling legislation so that HMRC can attack promoters and enablers of tax avoidance schemes

The Budget announcement talks about strengthening the information powers for HMRC’s existing regime to tackle enablers of tax avoidance schemes. Anyone – including staffing companies and end users who encourage workers to use certain types of scheme – enabling tax avoidance arrangements that are later defeated will face a penalty of 100% of the fees they earn. There will be a range of policy, operational and communications interventions to drive those who promote tax avoidance schemes out of the market, disrupt the supply chain to stop the spread of marketed tax avoidance, and deter taxpayers from taking up the schemes.