Last reviewed 3 March 2020
We reported last month that HM Revenue & Customs (HMRC) was planning significant changes to the IR35 rules (see HMRC spells out change to the off-payroll working rules).
A number of organisations expressed concerns at the speed with which the changes were to be introduced and the Government has now promised to help businesses ahead of the changes being implemented on 6 April 2020.
It has also promised that HMRC will take a light touch approach towards penalties, with businesses not having to pay penalties for inaccuracies in the first year, except in cases of deliberate non-compliance.
Financial Secretary to the Treasury Jesse Norman explained: “Following a review, the Government is announcing a package of measures to help individuals and businesses implement these changes smoothly.”
HMRC will increase its communications efforts, including webinars and guides, to support contractors’ understanding of the rules. This will complement the significant work already in train to support businesses to prepare, Mr Norman pointed out.
The Government has reiterated that new information from the changes will not be used to open investigations into Personal Service Companies (PSC) for past tax years, unless fraud or criminal behaviour is suspected.
The announcement won only lukewarm applause from the CBI with Director of Economic Policy, Annie Gascoyne, pointing out that it comes very late in the day.
“This policy cannot be the end of the road,” she argued. “There have been too many sticking plasters over the years and a holistic review of the employment tax system needs to be undertaken at the earliest point practical.”
Tej Parikh, Chief Economist at the Institute of Directors (IoD), was similarly unimpressed, suggesting that the announcement will offer cold comfort to businesses and that the decision to press on with the changes in April will cause significant concern.
“A light-touch approach to enforcing penalties will help,” he said, “but many will be left wondering why the policy could not wait another year altogether to resolve the evident challenges around its implementation.”
Comment by Peninsula Associate Director of Advisory Kate Palmer
Large and medium-sized businesses will welcome the news that the changes will only refer to services provided on or after 6 April 2020 and that HMRC will only apply a “light touch” in dealing with any mistakes in the first year — unless there is fraud or deliberate non-compliance.
However, some serious problems remain with IR35.
There is clear evidence that large companies are now shying away from employing contractors; that these contractors are considering moving away from the UK; and, the fact that IR35 contractors pay the same tax and national insurance as employees but have no employment protection rights.