Government launches limited review of IR35 rule changes

The government has launched a four-week review of the changes to IR35 off-payroll working rules scheduled to come into force in April, in the light of mounting criticism about the way they will operate 

The review of the IR35 rules for employees contracted via personal service companies, which are being extended from the public sector to the private sector in three months’ time, is intended to address any concerns from businesses and affected individuals about how they will be implemented.

The reforms, announced in the 2018 Budget, are designed to tackle non-compliance with off-payroll working rules by making medium and large organisations in the private and third sectors responsible for determining the tax status of contractors.

Contractors’ groups and others have raised a number of issues about how the IR35 rules will be implemented and about the way in which HMRC’s online check employment status for tax (CEST) tool operates.

Yvonne Gallagher, partner in the employment team at Harbottle & Lewis said: ‘While HMRC initial guidance described the test of status as straightforward, in reality it is no such thing.

‘Whilst is unlikely that there will be a wholesale retreat from a proposal which is, above all, about raising tax revenues, there may be scope for the impact of the legislation to be reduced in terms of the range of contractors to whom it will apply or the size of the clients who will be obliged to operate it.’

Chancellor Sajid Javid indicated in a BBC interview at the end of November last year that the government would look at how the rules will be implemented. The review will also assess whether any additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted.

The government will launch a separate review to explore how it can better support the self-employed. That includes improving access to finance and credit, making the tax system easier to navigate, and examining how better broadband can boost homeworking.

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.’

The review is scheduled to conclude by mid-February and will see the government hold a series of roundtables with stakeholders representative of those affected by the reform, including contractor groups and medium and large-sized businesses.

The government will also carry out further internal analysis, including evaluation of the enhanced CEST tool and public sector bodies’ experience of implementing the reform to the off-payroll working rules in 2017.

Matt Fryer, head of legal services at Brookson Group, said: ‘The government has not pledged to consider a repeal the IR35 changes in the private sector, 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 the announcement as solid confirmation that the legislation will be coming into effect this April, as planned. The wording of the statement clearly indicates that there will be no last-minute policy u-turn.’

Andy Chamberlain, deputy director of policy at IPSE (Association of Independent Professionals and the Self-Employed), described the review as ‘disappointingly hasty and inadequate’.

‘Not only has the government not said it will pause the changes, it has also allocated far too little time for a full review and said nothing about selecting an independent chair.

‘Such a limited review would leave the freelance sector floundering.

‘The government must urgently reconsider. It must give more time for a full review that includes an impact assessment of the changes in the public sector and the likely effects on the private sector. And for the integrity of the review, it must make sure it is independently chaired,’ Chamberlain said.

The Association of Taxation Technicians (ATT) is calling for the introduction of the rules to the private sector to be delayed by 12 months, highlighting a lack of final legislation or detailed guidance, which it says means businesses will find it near impossible to make adequate preparations in time for April, especially as Brexit planning will also be at its height.

Jon Stride, co-chair of ATT’s technical steering group, said: ‘The announcement of this review increases the need for a delay. We note that the government’s review is intended to conclude by mid-February, which we believe not only to be overly optimistic, but also only leaves less than two months for its findings to be put into effect.

‘As the Budget will not take place until 11 March 2020, the subsequent Finance Bill containing the legislation for these rules will only be published a little over three weeks before they are due to take effect.’

CIOT described the announcement that HMRC is to review CEST as ‘interesting’, given that an updated version was released in November. It also raised concerns about the lack of detailed guidance, and suggested a number of easements and clarifications could be made to smooth implementation, most notably a light touch on penalties where engagers and agencies have done their best to comply but where for whatever reason they have fallen short. 

Colin Ben-Nathan, chair of CIOT’s employment taxes sub-committee, said: ‘The key thing now is for the review to be completed as soon as possible, for appropriate easements to be made wherever possible and for the final legislation and guidance to be issued swiftly.

‘The off-payroll working changes require businesses and agencies to make significant changes to their systems and processes and 6 April is now approaching very fast.’

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