HMRC gives response to IR35 review.

Some positives but legislation will go ahead.

The government’s review into the impending introduction of IR35 changes for the private sector has resulted in a statement from HMRC. However, the results of the review have brought further criticism of the government from the recruitment sector. While there is a general positive reaction to the promise of a ‘soft landing’ for the legislation more commentators are critical of the lack of a rethink on the proposed rules. 

“The FCSA welcomes confirmation from HMRC of the Chancellor’s promised ‘soft landing’ in respect on the off-payroll reforms, particularly as there is mounting evidence that clients have been unable to fully prepare in advance of the April 2020 changes,” said Julia Kermode, chief executive of the Freelancer & Contractor Services Association (FCSA). “However, we are cautious that this may cause more confusion if clients and contractors are misled into thinking that the legislation has been delayed or will not be enforced.

“We have confirmed with HMRC that the soft landing is genuine and that penalties won’t ordinarily be applied for the first 12-months of implementing the reforms,” she adds. “This is good news because HMRC’s education programme was delayed due to the general election, so a number of businesses are only finding out about the reforms and their new liabilities now, just weeks before the legislation comes into effect. However, the soft landing does not mean that businesses and individuals can plan to ignore the changes because HMRC has also confirmed that penalties will be applied where there is deliberate non-compliance.”

Kermode also says clarity regarding overseas clients being out of scope, is welcome plus the amendment requiring clients to confirm whether or not they are small so that the supply chain can ascertain if the new off-payroll rules apply.

However, Kermode comments: “It has been clear to me for some time that HMRC has been hellbent on planning to implement the off-payroll reforms this April come what may, and the publication of their review clearly shows that these reforms are coming whether we like it or not. I can’t see the budget on 11 March bringing about a u-turn, so it would seem that the House of Lords inquiry into the legislation is the last hope to affect any meaningful change.”

Samantha Hurley, Director of Operations at APSCo and Co-chair of the Government’s IR35 Forum was positive about HMRC’s moves, if resigned to the inevitability of the changes: “The ‘soft landing’ that Rishi Sunak promised earlier this week has now been revealed,” she said, “and I have no doubt that our members will welcome the extra time to adjust that this arrangement offers.

“When the review into implementation was launched last month, APSCo made it very clear that we were not seeking a complete delay to implementation, but a period of time within which recruitment businesses and end clients wouldn’t be penalised. This was communicated directly to HMRC and other stakeholders, and we are extremely pleased this recommendation has been listened to and taken on board by the Government,” she said. “HMRC has long maintained that it genuinely wants businesses to comply with the new rules and that there will be no witch hunt – and this latest move suggests this may truly be the case. The fact that it has also published additional guidance to educate the supply chain is welcomed by APSCo.”

Other industry experts have been less supportive of the outcome however. Qdos CEO, Seb Maley, commented: “The government has clearly ignored calls for a genuine review into IR35 reform, with the findings suggesting they were simply paying lip service to appease critics.

“Issues around the CEST tool, HMRC’s level of support and ways contractors can contest unfair IR35 decisions still stand. With IR35 reform only a month away, the response from government is very disappointing, albeit unsurprising.”

Meanwhile ISPE has branded the review as “recklessly inadequate” stating that the government is still set to push ahead with its “catastrophic” policy.

“The tweaks proposed by the review go nowhere near far enough,” said Andy Chamberlain, deputy director of policy at IPSE. “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.

“These off-payroll rules will be catastrophic for the contracting sector and will do serious damage to client businesses and the wider economy,” he says. “Many businesses are already scrapping their contractor workforce because of these changes and, as we told the House of Lords inquiry, our research shows at least a third of freelancers plan to stop contracting in the UK because of them. We continue to urge the government to rethink this disastrous policy before it is too late.”

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