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New chancellor Rishi Sunak has sought to assure business leaders that the IR35 tax avoidance reforms will not be enforced in a “heavy-handed” manner in the private sector for the first 12 months.
In leaked footage from an address Sunak gave during a speaking engagement in Birmingham over the weekend, he briefly touched on the forthcoming IR35 reforms, and why their introduction is needed.
“What’s been clear for a long time is those rules haven’t always been followed,” he said, which is why contractors will soon have to relinquish responsibility for determining how they should be taxed to the private sector organisations that hire them.
This is, he said, to clamp down on contractors who are effectively working in the same way or performing the same duties as a permanent employee, but self-declare themselves as contractors to reduce their employment tax liabilities.
“Some people, unfortunately, will operate in a way that when they weren’t 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,” he continued.
#IR35 WILL come, without ANY change!— HMRCon_Intranet (@HmrconI) February 22, 2020
This video of @RishiSunak leaves no doubt whatsoever!#GTFO
Contracting is dead!!!
Freelancing is dead!!!
Do NOT trust Hmrc or HMT - EVER!!!@stopoffpayroll @IPSEwestminster @ContractorCalc @BaloPig @CarrotyD @elashton @mc_conscience pic.twitter.com/9IyxkmavYD
“And it’s not fair to all the people employed that someone else doing the same job is paying less tax. So it’s right that unfairness is corrected, and it will mean a change for some people.”
As part of this, he moved to assure attendees that HM Revenue & Customs (HMRC), which will be overseeing the enforcement of IR35, will take a light-handed approach to ensuring medium-to-large private sector firms are complying with the new rules during the first year.
“I’ve spent time with HMRC to ensure that it is not going to be at all heavy-handed for the first year to give people time to adjust, which I think is an appropriate and fair thing to do,” he said.
During the footage, he also touched upon the review into the reforms, which was due to be completed and made public in mid-February.
That review will, he said, see some “tweaks and improvements” introduced to the reforms to ensure the transition is as “seamless as possible” for the private sector.
Rishi Sunak, chancellor of the exchequer
Computer Weekly contacted HMRC for clarification on its enforcement strategy for the first year of the IR35 reforms, and was directed to contact HM Treasury instead. At the time of publication, no response had been received from latter department’s press representatives.
Sunak’s remarks have not landed well with contracting stakeholders. Dave Chaplin, CEO of IR35 consultancy ContractorCalculator, described the address as “pitiful” given the issues already being caused by the reforms, which are due to come into force on 6 April 2020.
As previously reported by Computer Weekly, there have already been numerous reports of private sector firms responding to their new-found responsibilities by banning the use of contractors, or issuing company-wide declarations that all self-employed workers should be taxed as employees.
“We are seeing firms halt or delay their projects, or move them offshore, putting the self-employed out of work. And all Rishi Sunak can offer is that he’s had a cosy chat and ask HMRC not to be too hard on firms in the first year. That is a pitiful response from the chancellor, and clearly demonstrates he is incapable of exercising any power,” said Chaplin.
“The Conservatives, supposed party of small business, are killing the UK entrepreneurial drive, just as we prepare to leave the EU.”
Read more about IR35 in the private sector
- The UK government stands accused of overlooking the toll its latest disguised employment clampdown is taking on the livelihoods of private sector IT contractors, as doubts are cast about whether the initiative will raise the £3bn tax revenue HM Revenue & Customs claims it will.
- Thousands of IT contractors are at risk of financial ruin as HMRC pursues them for tax it claims they owe on work they did up to two decades ago and were reimbursed for via loan remuneration schemes. Computer Weekly investigates.
- Self-employed workers across the UK are being locked out of work by enterprises that are enforcing blanket bans on the use of contractors to side-step the IR35 reforms, chancellor Sajid Javid has been warned.
Read more on IT for utilities and energy
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IR35 reforms: HMRC questioned about CEST as tax status of 210,000 contractors left 'undetermined'
IR35 private sector reforms: HMRC reminds firms to use ‘reasonable care’ when applying new tax rules