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IR35 private sector reforms: First year of enforcement won't be ‘heavy-handed’, claims chancellor

New chancellor Rishi Sunak has moved to assure business leaders that HMRC will not be heavy-handed in enforcing the new IR35 rules

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.

“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.

“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”
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.”

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