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HMRC urged to delay April 2020 extension of IR35 rules to private sector by 'at least' 12 months

An analysis of the responses HMRC has reportedly received to its consultation on extending the IR35 tax avoidance reforms to the private sector suggests the tax agency is coming under pressure to put its plans on hold for at least 12 months

HM Revenue & Customs’ (HMRC) consultation on extending the IR35 off-payroll regulations to the private sector in April 2020 has seen the tax agency inundated with requests to put its plans on hold for a least 12 months, it is claimed.

IR35 consultancy ContractorCalculator claims to have analysed 29 of the submitted responses to the consultation, which HMRC launched in March 2019, and said the results suggest the organisation should consider delaying, reviewing and rethinking its plans because the private sector needs more time to prepare for the changes.

As it stands, the introduction of the IR35 tax avoidance regulations to the private sector will see firms assume responsibility for determining if the contractors they hire should be taxed in the same way as salaried staff (inside IR35) or off-payroll employees (outside IR35).

The reforms were introduced to the public sector in April 2017, and meant contractors who work for NHS trusts and other government departments were no longer allowed to self-declare their tax status as part of HMRC’s push to clamp down on tax avoidance.

According to ContractorCalculator’s analysis of the 29 consultation responses it has accrued, there were 10 areas in total that respondents repeatedly flagged as concerns, which the firm’s CEO Dave Chaplin said collectively highlight why HMRC should consider delaying the reforms.

“Our analysis has uncovered a host of practical and ethical issues with HMRC’s proposals for the private sector and presents the most prominent feedback in a balanced manner,” said Chaplin. 

“Our summary makes it clear that HMRC has a lot of work to do before it can seriously consider extending the Off-Payroll rules to the private sector.”

Read more about the IR35 reforms

A chief concern among respondents is that the April 2020 launch date for the private sector reforms will give businesses too little time to prepare, which in turn has fuelled follow-up fears that this could lead to blanket determinations about how contractors should be taxed, or put organisations in the sector off hiring contractors at all.

“Many have urged HMRC to take stock, instead of ploughing ahead with its ill-conceived plans,” said Chaplin. “At the very least, a further delay until April 2021 is needed to enable HMRC to attempt to fix the many flaws in its plans – it is time to delay, review and rethink.”

Computer Weekly put these concerns to HMRC, and was told by a spokesperson provisions had been made to give the private sector time to prepare for the roll-out of the regulations by April 2020.

“Following consultation, the government announced that it will extend the reform of the off-payroll working rules to all medium and large organisations from April 2020,” said a spokesperson for HMRC

“The government listened to the concerns of individuals and businesses and delayed extension of the reformed rules until then to ensure they have time to prepare.”

Chaplin said his firm decided to carry out its own independent analysis of the consultation responses out of concerns over how he claims HMRC has handled and interpreted similar types of stakeholder feedback in the past.

Suppressing evidence

As previously reported by Computer Weekly, the organisation has previously stood accused of attempting to suppress anecdotal evidence shared by stakeholders about how the introduction of the regulations to the public sector had led to an uptick in IT contractor attrition rates.

As such, the firm has created a document that compiles and summarises the responses from high-profile contracting stakeholder groups, Chartered Accountants in England and Wales (ICAEW), the Confederation of British Industry (CBI), the Recruitment and Employment Confederation (REC) and the Association of Independent Professionals and the Self Employed (IPSE), among others.

“We simply don’t trust the taxman to deliver an accurate representation of the feedback provided,” he said. “Too often, we have seen HMRC gloss over and blatantly ignore the concerns shared by respondents.”

“It is not good enough for HMRC to ignore the bulk of some very legitimate concerns, many of which have been raised by organisations with a unique insight into the effects of the Off-Payroll rules in the public sector, and their views should not be dismissed lightly.”

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