Welcome To 2020

As we begin 2020, the uncertainties facing businesses in the UK in the legal sense are, for most of us, unprecedented. Despite this, employment law is an area where there are some certainties and anchor points throughout the year on which we can rely as inevitable and fixed. Forewarned is forearmed as they say, so let us take a look at some of what we can confidently prepare for this year in terms of employment and discrimination law.

Changes in IR35 rules in the private sector

The importance of assessing the reality of working arrangements, not just the label given to them, comes into sharp focus early this year.

Many of our regular readers will be aware of the changes coming into force on 6 April 2020 in the UK in respect of paying contractors who provide services through a personal service company (PSC). These changes will affect medium and large companies in the private sector and bring them into line with public sector employers. The PSC route has been commonly used until now, as it can be tax-efficient for contractors and clients/end-users.

These changes are expected to turn the contractor market on its head and cause many companies and contractors to look again at their working relationship. HMRC estimates £1.3 billion of revenue will be lost by 2023/2024 if these changes are not implemented.

The new rules will require the client/end-user to assess the status of contractors who provide services through a PSC to determine whether they should be treated "as if" they are employees (or inside IR35) for tax purposes. Where they are a "deemed employee", payments to them will need to be processed through payroll.

There are substantial cost implications. The new rules will add the cost of payroll taxes into commercial negotiations with contractors who operate through PSCs and who are assessed as being "deemed employees". The most substantial of these is the 13.8% employer National Insurance Contributions (NICs).

There will also be additional costs for administering the new rules. The responsibility for determining whether the contractor/PSC is a "deemed employee" sits with the client/end-user. It is responsible for the payments to HMRC. There is an (improved) HMRC online tool which can assist with this determination. While subject to some criticism, the "check on employment status for tax" or "CEST" tool gives clients/end-users some certainty. It has the key advantage that HMRC will be bound by the output of the test, unless it has been obtained fraudulently.

Importantly, this change will not give these contractors employment status for employment law purposes. This is about...