HMRC has published a review into the roll-out of IR35 legislation to the private sector and confirmed that it will not be delayed, although some tweaks have been made to enable a “soft landing”.
The Government has confirmed it is pushing ahead with the extension of off-payroll legislation to the private sector in April and has outlined plans for a ‘soft landing’.
HMRC published the findings of the Government review into the IR35 off-payroll working rules which clarified that there will be no delay to the implementation of IR35, although it said there would be a number of changes and a communications programme to better explain how the rules will operate in practice.
The key changes are:
Changes to IR35 legislation are due to come into force in April 2020, which will see medium and large private sector organisations take responsibility for assessing and determining a worker’s employment status.
This means that those organisations employing contractors through limited companies will have to decide whether these workers are operating inside or outside of IR35. If a contractor is considered to be inside IR35, HMRC will deem this to be a ‘disguised employee’, and therefore subject to the same tax and NI deductions as the permanent workforce. The changes have already been implemented in the public sector.
The Association of Accounting Technicians has welcomed the changes, saying it was unrealistic to think the plans would be reversed. In particular it says they mean that if employers or contractors have taken reasonable steps to comply but get something wrong, HMRC will not be pursuing them with fines and penalties.
However, others have described them as “recklessly inadequate”. IPSE (the Association of Independent Professionals and the Self-Employed) says the plans are “essentially unchanged” and will be “catastrophic” for the contractor sector.
It adds that the publication of the review coincides with research by Offpayroll.org that shows only 15 per cent of contractors have so far been assessed as “outside IR35” compared to the 66 per cent expected by HMRC. It also finds that 76 per cent believe a “soft landing” for the policy would not affect their client’s approach to the rules.
Andy Chamberlain, Deputy Director of Policy at IPSE, stated: “From the start, this review has been recklessly inadequate. Not only was it not independently chaired; it was also rushed out of the door in less than two months.
“The tweaks proposed by the review go nowhere near far enough. If anything, this tinkering shows the government knows the changes to IR35 will be immensely disruptive to business and contractors, but plans to forge ahead regardless.
“These off-payroll rules will be catastrophic for the contracting sector and will do serious damage to client businesses and the wider economy.
“Many businesses are already scrapping their contractor workforce because of these changes and, as we told the House of Lords inquiry, our research shows at least a third of freelancers plan to stop contracting in the UK because of them. We continue to urge the government to rethink this disastrous policy before it is too late.”