Review in to IR35 officially launched by Government

The Government on the 7/1/20 has officially launched its review in to IR35, as promised by Sajid Javid, Chancellor of the Exchequer in November 2019.

According to the Government “the review will determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms, which are due to come in to force in April 2020.”

The review which will be concluded by mid-February, will hold a series of roundtables with contractor groups and medium and large-sized businesses. The Government will also evaluate its Check employment status for tax (CEST) tool.

A separate review will also be launched, which is to explore how the Government can better support the self-employed.

Jesse Norman, financial secretary to the Treasury said:

We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules.

The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.

Matt Fryer, head of legal services at Brookson Group acknowledges the statement as confirmation there will be a review but also that IR35 will be implemented in to the private sector and not reversed.

Mr Fryer said:

The Government has not pledged to consider a repeal the IR35 changes in the private sector today, but to review ‘if any further steps can be taken to ensure the smooth and successful implementation of the reforms’. Businesses, contractors and recruiters should take today’s announcement as solid confirmation that the legislation will be coming in to effect this April, as planned. The wording of the statement clearly indicates that there will be no last-minute policy U-turn. Anyone who has not taken the necessary action to prepare yet, should do so now.

The best that can be hoped of the review is that it will address the concerning trend of large users of contract labour bypassing their obligations under the new rules by enforcing blanket bans on the use of contractors in their supply chains. It would also be helpful to have further clarity on responsibility for IR35 compliance within the supply chain as this will be a key issue for businesses working with recruitment agencies moving forwards. Finally, we would expect a “soft landing” post-April, with HMRC using the first 12 months to continue to educate, rather than seek to punish businesses who have not been able to get their house in order.

The announcement was seen as positive for those who will be affected by the legislation.

Seb Maley, CEO of Qdos, an insurance and tax advice for the self-employed said:

The Government has delivered on its promise to review IR35 reform. The fact that it will conclude before the introduction of the changes in April is also important.

However, while a review is a sign of progress it doesn’t mean the changes will be scrapped. HMRC itself has said this review is to make sure reform is implemented smoothly, suggesting the government has every intention of rolling out needless changes irrespective of any findings.

That HMRC is still under the illusion that IR35 reform only affects those ‘working like employees’ also shows just how out of touch the government is with regards to the true impact of the changes.

Given the legislation applies to payments made on or after 6th April, which typically covers work carried out in March, there is very little time for the government to make any improvements once the review has concluded in February.

The Government also claim those who don’t comply with IR35, pay significantly less income tax and NICs than an equivalent employee. This is misleading, given the majority of tax paid on behalf of an employee is employers’ NI. HMRC must stop painting the picture that it is the worker dodging tax.

Taking everything into consideration, our advice to contractors, agencies and private sector businesses is to assume changes will be enforced and prepare immediately.

Dave Chaplin CEO and founder of contracting authority ContractorCalculator and director of StopTheOff-PayrollTax campaign, which campaigns against the roll out of the “off-payroll rules” said:

I am delighted that the Government is holding firm on its promise to conduct a full review.  It demonstrates that it is still willing to listen to the thousands of contractors who have been expressing their concerns to their MPs as part of the Stop The Off-Payroll Tax campaign.

Let’s hope we now have a Chancellor who will not just listen but will react and will stoke the furnace of the self-employed sector, rather than his predecessor Phillip Hammond, who through his reforms, has strangulated it.

Pushing ahead with this contract jobs killing measure will be insane as we leave the EU. Reliance on a flourishing flexible workforce will be vital.