IR35 update to Employment Status Manual in readiness for 6 April 2021


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HMRC has published updates to its Employment Status Manual dealing with the extended off-payroll working rules for the private sector on 17 September.

The extended rules will apply from 6 April 2021.

There is now guidance setting out how to determine whether a business is a small entity (and therefore falls outside IR35's remit). For medium and large corporate entities the HMRC guidance explains how to calculate the average number of employees (one of the factors which determines whether the entity will fall within the rules), as well as making it clear that "deemed" employees are excluded, giving examples.

The guidance also includes additional detail and examples of businesses' responsibility in relation to the issue and challenge of status determination statements (SDS), including the procedure where a challenge to an SDS leads to a different conclusion.

There is also clarification as to when HMRC will use its powers to recover unpaid tax from other persons in the labour chain and in cases of insolvency, and further detail on how the recovery and appeals processes will operate.  New examples demonstrate what HMRC considers to be cases of genuine business failure, where it would not seek to recover the unpaid tax from other persons in the chain. 

Finally international issues are addressed.  Standard tests apply to determine residence and the existence of permanent establishments (PE). It is HMRC's view that where a non-UK client has a UK connection through a PE, the client is responsible for operating the rules, but HMRC will pursue the debt through the UK PE if tax is unpaid.

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