Hopes of delay dashed
HMRC goes ahead with IR35 with only minor changes
Mike Cherry: disappointing
The government has dashed hopes among contractors and other freelancers that it will delay or make significant changes to the controversial IR35 tax reform which come into effect in six weeks.
Following a review, HMRC said the changes would go ahead as it attempts to clawback an estimated £1.3 billion a year in lost tax by 2023.
It has, however, promised a “light touch approach to penalties” in the first year and has promised contractors a new “flowchart” to help them prepare.
The change makes employers rather than employees responsible for determining the tax status of contractors and freelancers so that they may have to be taxed in the same way as employees.
It has forced a third of contractors to say they may give up altogether and others say they will seek more work overseas.
HMRC said that customers will “not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance.”
In its review, the government said it had listened to the concerns and had changed its approach “where appropriate to better support affected businesses and individuals.”
Despite the changes the government said it remains committed to IR35 and “believes it is right to address the fundamental unfairness of the non-compliance with the existing rules”.
The Federation of Small Businesses chairman Mike Cherry said: “It’s disappointing that the Government has decided to press on with these changes, particularly against a backdrop of an unprecedented 18-month slump in small business confidence.”
Andy Chamberlain, deputy director of policy at IPSE, said: “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.”
The review offered a number of concessions, some of which chancellor Rishi Sunak hinted at last week:
- Customers (private businesses) will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance
- HMRC confirmed its previous commitment that information resulting from changes to the rules will not be used to open new investigations into Personal Service Companies for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour
- The government will place a legal obligation on clients to respond to a request for information about their size from the agency or worker, and update the legislation to address concerns raised over the rules as they apply to offshore companies