As October 2018 came to its end, the Chancellor was waiting to make an important announcement. He explained the battle of S&S Umbrella dealing with the rules of the public sector which were extended to the private sector—an issue that heavily matters to S&S Umbrella for their clients’ well-being.
Going by the announcement, it is believed that after April 2020, the responsibility falls on the shoulders of clients to analyze and process the status of IRS35 for their activities. What this means is that, the client’s hired agency or the client themselves now carry the duty to make decisions about the right tax calculation and deduction and hence the source carries the burden for taxation.
Financial professionals and tax analysts are not too receptive of Government’s policy. As a result the Government noticed the warning from S&S and put a stop to their plans for bringing these regulations in 2019. More impressively, the smaller fish in the sea .i.e. small businesses are not to be affected by the restrictions of the reform. In the past, we have always shed light on the subject matter and our grievances with its hindering rules.
One of the major talking points about the legislation that has spread confusion in the finance sphere is the impact that follows after its implementation. Analysts question if this means a spike in the cases of retrospective investigations? For example, if a client (let’s say they have been a working on a contract for 7 months) was hesitant in their acceptance of client determination—which is applied by the IRS35, brings out the following questions:
- Were they responsible to be compliant with the IR35 since the beginning?
- Would the HMRC target that individual’s record for their previous history?
With the Budget documentation like the Red Book, the HMRC added an important note to provide clarity for the above-mentioned questions. Fortunately, they are not going to delve deeper into the past events as many may have feared. One of the key points from the section ‘9’ which can solve the puzzle is:
- ‘The reform is not retrospective – as it has in the public sector HMRC will focus its efforts on ensuring businesses comply with the reform rather than focusing on historic cases.’
- ‘HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform and businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years.’
Shrewd individuals can see there is no explicit mention of the ruling out of the retrospective investigations; instead HMRC has explained its “vision” to ignore them.