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IR35 review confirms “light touch” for first 12 months – but no delay

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IR35 review confirms “light touch” for first 12 months – but no delay
Sam Bromley

Sam Bromley

27 February 2020

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The Treasury’s IR35 review has finally been published. Contractors hoping for a delay to the rules will be disappointed, as the document confirms off-payroll changes will go ahead on 6 April 2020 – with some (small) concessions.

  • What is IR35? A guide for the self-employed
  • What does being inside IR35 mean?
  • HMRC’s digital tax reforms are costing businesses thousands more than expected
  • What does professional indemnity insurance cover?

A softer IR35 approach for the first 12 months

The IR35 review confirms the government will implement the change as planned on 6 April. But there are some small concessions for contractors and their clients including:

  • a “softer approach” to compliance in the first year of reform, where no penalties will be due for inaccuracies, unless HMRC suspects deliberate non-compliance
  • more “signposting” to HMRC’s guidance, “as well as explaining the changes through webinars, letters, workshops and other material”
  • an update to the legislation to clarify the time limits for the “client-led status disagreement process” as well more guidance “to make the appropriate use of this process clearer”

Read the Treasury’s full IR35 review.

Why was there an IR35 review in the first place?

The upcoming rule change means medium and larger-sized businesses will be responsible for determining a contractor’s tax status, rather than the contractor themselves.

But the self-employed fear it’ll harm their flexibility, for example if big businesses make ‘blanket assessments’ of contractors to minimise risk. HMRC also doesn’t have a strong record of interpreting its own rules.

That’s why contractors took notice when the Conservatives promised a “proper review” of IR35 during their election campaign.

But the review is “recklessly inadequate”

The self-employed sector has criticised the review. Sophie Wingfield, from the Recruitment & Employment Confederation, said: “What’s obvious from this is that the Treasury know IR35 is not quite right. Rather than tinkering around the edges of this complex legislation, we need the government to delay implementation until 2021 to make sure it’s done properly.”

IPSE’s Andy Chamberlain was more scathing, calling the policy “catastrophic”.

A new Chancellor, but nothing more than “tweaks and improvements”

The Treasury has published its review following Rishi Sunak’s recent appointment as Chancellor. There was hope he could delay the reform, but the review means we shouldn’t expect any significant IR35 announcements in his Budget on 11 March.

Prior to the review’s publication, the Chancellor said he’d been working with HMRC “to ensure that they are not going to be at all heavy-handed for the first year” and promised the review would “have some tweaks and improvements to make sure the transition is as seamless as possible”.

Now those tweaks and improvements have been announced, the question is – do they go far enough? Let us know in the comments below.

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