At our recent seminar looking at what's on the horizon for charities in 2020, we talked about the changes to the IR35 tax rules that are expected to come into effect on 6 April this year. We know that many charities and not-for-profit bodies have been reviewing how they engage consultants ahead of these proposed changes.
The changes will apply to all medium and large sized private sector organisations that engage consultants via an intermediary – most commonly a personal service company of which the consultant is a director.
Charities caught by the changes will need to determine whether deemed employment status applies to their arrangements with intermediaries. If it does, the charity will be responsible for deducting tax and employee National Insurance Contributions (NICs) via PAYE. The charity will also need to pay employer NICs and (if applicable) the apprenticeship levy.
We wrote about how these new rules will affect charities in an article for Charities Management last year. We expressed concern that confusion about how and when the rules will apply could leave charities exposed to unexpected increases in costs and a shortage of skills. With similar concerns being expressed across the private sector, the Government this week launched a review of the implementation of the new rules.
HM Treasury's press release says the review will "determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms". The review will hear from representatives of those affected, including contractor groups and businesses, and will also include an evaluation of HMRC's online 'check on employment status for tax' (CEST) tool. However, the review is not expected to delay the implementation of the new rules on 6 April 2020.
What should charities do to prepare?
This week's announcement should not delay charities in preparing for the implementation of the new rules. While HMRC's CEST tool has been criticised as unreliable, an updated version was launched in November last year to improve the clarity and consistency of the results, and it still provides a helpful starting point.
HMRC say they will stand by the CEST result as long as the information provided was accurate and in accordance with their published guidance. However, a CEST result won't necessarily be the last word on the matter – a Tribunal recently disregarded the results from CEST when deciding the employment status of a worker for the purposes of the IR35 legislation (in the case of RALC Consulting Ltd v HMRC).
Charities unclear about whether the new rules will apply to them, how to prepare for the changes, or about the employment status of their workforce, should seek advice without delay.