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The planned extension of the IR35 tax avoidance reforms to the private sector will be subject to a review that is set to conclude in mid-February 2020, the government has confirmed.
The review will focus on what needs to be done to ensure the reforms are rolled out to the private sector in a “smooth and successful” way, ahead of them coming into force on 6 April 2020, the government said in a statement.
To assist with this, the review will gather evidence from contractors and private sector businesses that are set to be affected by the changes to assess whether additional support or further action is needed to help them get to grips with the reforms.
This is because, from 6 April, medium to large private sector organisations will assume responsibility for determining whether the contractors they engage with should be taxed in the same way as off-payroll employees (outside IR35) or as salaried workers (inside IR35).
An outside IR35 determination means contractors are not liable to make pay as you earn (PAYE) tax or national insurance contributions as a permanent employee would, but the reverse is true if the work they do is considered to be inside IR35.
At present, it is up to contractors in the private sector to self-declare how they think they should be taxed, giving rise to accusations from HM Treasury and HM Revenue & Customs (HMRC) that some have used the system to engage in tax avoidance.
Jesse Norman, financial secretary to the Treasury, said the review is an acknowledgement by the government about the concerns raised by private sector businesses about the onset of the reforms.
The concerns have focused primarily on how private sector organisations will deal with the additional administrative burden the changes will impose on them. As previously reported by Computer Weekly, such concerns have already prompted a slew of private sector firms to take steps to wind down their reliance on IT contractors.
“We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules,” said Norman. “The purpose of this consultation is to make sure the implementation of these changes in April is as smooth as possible.”
The government statement makes frequent reference to the April 2020 start date for the reforms, which will come as a disappointment to campaigners who have previously called for the roll-out date to be put on hold, so that a thorough review of the reforms can take place.
Read more about IR35
- Contracting groups and trade associations say prime minister Boris Johnson must deliver on his party’s pledge to review the IR35 reforms and allay fears that it was an empty promise made to secure votes.
- With just over six months to go until the IR35 tax avoidance reforms come into force in the private sector, IT contractors are waiting with bated breath to see how the organisations they engage with intend to respond to their new-found responsibilities.
The possibility of a review of the reforms was first mooted by chancellor Sajid Javid in the days leading up to the December 2019 General Election, despite no mention of the plan appearing in the Conservative Party’s official manifesto.
Since the Conservatives secured a solid majority in the election, no further mention of the review – until now – had been made, prompting concerns from contractors about the sincerity of the pledge.
Dave Chaplin, CEO and founder of IR35 consultancy ContractorCalculator and director of the Stop The Off-Payroll Tax Campaign group, said he was pleased to see the government honouring its earlier pledge now it is in power, but the campaign group is now pushing for the government to repeal the reforms completely.
This is on the basis that the roll-out of similar changes in the public sector in April 2017 contributed to IT contractors walking out en masse, which had a knock-on impact on the delivery of a number of high-profile IT projects.
“Let’s hope we now have a chancellor who will not just listen but will react and will stoke the furnace of the self-employed sector, rather than his predecessor Philip Hammond, who, through his reforms, strangulated it,” said Chaplin.
“Pushing ahead with this contract jobs-killing measure will be insane as we leave the EU. Reliance on a flourishing flexible workforce will be vital.”