Uniac - July 2022

14 On 09/03/1999, the Inland Revenue issued a press release called ‘Countering Avoidance in the provision of Personal Services’ outlining Government plans to restrict the use of sole shareholder/director limited companies (‘Personal Services Companies’) to provide professional services to clients to (allegedly) reduce liabilities to tax. This became law in 2000 (via the Finance Act 2000) and the rules, whilst going through several changes and iterations, are still in place today. In 2015, the Government released a document called ‘How to make IR35 more effective in protecting the Exchequer’ which highlighted the possibility that organisations engaging individuals may be required to determine their employment status. In March 2016, the Government confirmed that there would be changes to IR35 legislation to consider in more detail ‘off-payroll working’ within public sector organisations which became effective from 06/04/2017. This required public sector organisations (‘clients’) to assume responsibility for determining whether individuals engaged for services were inside or outside the IR35 legislation. If individuals were assessed and deemed to be in an employment relationship, it became the responsibility of the client for treating the 4 Off-payroll working in the public sector: reform of the intermediaries legislation - technical note - GOV.UK (www.gov.uk) individuals as an employee and accounting for PAYE and National Insurance Contributions at source on behalf of HMRC. A technical note4 was published by HMRC which set out the practicalities of IR35 legislation requirements. This change required, in many cases, new processes and controls to be created in organisations which had not previously had to make these determinations themselves but relied on the contractors they were engaging. To support understanding of the legal change in responsibilities, HMRC published guidance in February 2017 for clients and contractors setting out the new rules.5 Additionally, HMRC launched the Employment Status Test (‘ESS’) to assist with the employment status determination for tax purposes of individuals for establishing whether they were inside or outside IR35. The ESS became the ‘Check Employment Status for Tax’ (‘CEST‘) tool currently used for status determinations. This paper considers the impact of the IR35 legislation from an HE perspective following on from recent work undertaken in this area on the relationship between institutions and individuals engaged for services, the current requirements (including the April 2021 update to the legislation), the risks to demonstrating these have been achieved and the way ahead for employment status determinations for tax purposes. 5 https://www.gov.uk/guidance/off-payroll-working-in-the-public-sector-reform-ofintermediaries-legislation 3. Managing IR35 Requirements – December 2021 Background