The Government has published the Finance Bill 2019–20, its draft legislation to bring into effect tax policies announced in recent budgets and financial statements.
Available at https://www.gov.uk/government/collections/finance-bill-2019-20, together with supporting papers, it promises to “update tax policies for the digital age”.
One comment in the accompanying statement will, however, ring alarm bells with many people when it says: “Off-payroll working rules will ensure that two people working side by side in a similar role for the same employer pay the same employment taxes”.
This marks confirmation of the return of IR35 to the headlines (see IR35 tax rules coming to the private sector) nearly 20 years after the Treasury issued a press release to accompany the 2000 Budget Statement with that reference number.
The Government reformed the rules with regard to the public sector in April 2017 and this latest announcement suggests that IR35 is coming to the private sector. See https://www.gov.uk/government/consultations/off-payroll-working-rules-from-april-2020#history for details of a consultation on the subject.
The proposal has not been well received by the REC (Recruitment and Employment Confederation) with Director of Policy and Campaigns, Tom Hadley, pointing out that it had urged the Government to put its IR35 plans on hold, to conduct a comprehensive impact assessment and to remove the exemption for small businesses.
“We know from experience that the IR35 rules are a huge problem for employers and contractors alike,” he went on. “Making sure everyone pays the right tax is essential, but the rules need to be clear to be effective. The last thing private sector businesses need at this time of Brexit uncertainty is rushed or poorly-designed tax rules that add further uncertainty to an already fragile business landscape.”
Highlighting that some businesses rely on many thousands of contractors, so that adjusting to the requirements will be a considerable administrative and financial burden, the REC has called on the Government to delay changes to IR35 for at least a year after its planned introduction in April 2020.
Comment by Croner Associate Director Paul Holcroft
The implications of this development are potentially wide reaching and, if the new rules are introduced as planned, employers may soon find themselves making numerous changes to how they identify and pay contractors undertaking work in their organisation.
IR35 tax rules, and their potential impact upon private sector companies, remain a confusing area and clear guidance on how they will work in practice is needed so that employers can fully understand what their obligations are.
That said, we do not yet know if the calls for a postponement to assess this issue will be listened to and employers should still prepare for the planned introduction date of April of next year.
I would therefore highly advise that employers get to grips with the requirements of IR35 tax rules now.
It should be remembered that an investigation into this area conducted by the HMRC can take up a lot of time, manpower and finances and may even lead to prosecution for tax avoidance.
Last reviewed 25 July 2019