Chancellor promises lenient penalties for IR35

The Chancellor, Rishi Sunak has reassured contractors that HMRC will not be ‘heavy handed’ on penalties during the first year of IR35 implementation

Speaking at an event in Birmingham over the weekend speaking to business leaders, the Chancellor attempted to explain the reasoning behind the IR35 tax changes as well guarantee a soft landing penalty period where HMRC would allow businesses to adjust to new measures.

Set to come into effect from 6 April, IR35 will increase income tax and National Insurance Contributions for contractors and their employers.

Rishi Sunak said: ‘We are shortly to publish a review of how it should be implemented with some tweaks and improvements to ensure that the transition is as seamless as possible.

‘I can also tell you that I have spent time with HMRC to ensure that they are not going to be at all heavy handed for the first year to give time to adjust as well which is an appropriate thing to do.

The off-payroll working rules has seen a backlash with over 300 contractors protesting IR35 outside parliament earlier this month.

It is not fair to people that are employed that people doing the same job are paying less tax

The Chancellor, Rishi Sunak

Sunak added: ‘What IR35 does is change the balance so instead of people making the assumptions about how they should be taxed, we put the onus on the company to make that assessment for them.

‘Now that is going to be some change because for some people they were operating in a way where they were not paying the tax they probably should have been, because essentially they were employees, but they were being taxed as if they were self-employed and there is quite a difference there.

‘It is not fair to people that are employed that people doing the same job are paying less tax.

Following the remarks made by the Chancellor on IR35,

Brian Palmer, tax policy expert at AAT, said: ‘While many organisations continued to call for a delay to implementation, AAT recognised that further delays were unlikely, so instead called for a 12 month “soft landing” period, with no penalties or fines imposed on businesses who can demonstrate taking reasonable steps to comply.

‘AAT is naturally pleased that the Chancellor has agreed with our proposal and believes this should provide some much needed reassurance for both employers and contractors alike.

Also responding to the Chancellor, James Poyser, CEO of inniAccounts, said: ‘It is yet another half-baked decision that fails to do the right thing - it simply adds rather than detracts from the crisis.

‘If the Treasury is now acknowledging there is a risk to UK plc following feedback from businesses, professional bodies and contractors, then it needs to be bold and say it will provide the delay and properly engage with organisations and those affected.

‘Until then, a soft landing means nothing because ultimately the legislation will not change. The “right thing” is listening to the calls for delay, properly reviewing the evidence that all says it will cripple industry, and to then change the legislation and remedy how it is implemented.’

300+ protest IR35 outside parliament

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