IR35 gets soft landing in the private sector

The Chancellor has confirmed HMRC will not be ‘heavy-handed’ in the first year of the new off-payroll rules in the private sector. However, IR35 critics fear this announcement means the soon to be released IR35 review is going to result in no changes at all.

25th Feb 2020

Chancellor Rishi Sunak spoke at an event in Birmingham over the weekend and revealed that the private sector reforms will have a soft landing when they come into effect in April.

“I’ve spent time with HMRC to ensure they are not going to be at all heavy-handed for the first year to give people time to adjust as well, which I think is an appropriate and fair thing to do,” said Sunak.

Sunak also alluded to more changes in the pipeline as he confirmed that the government’s soon to be released IR35 review “will have some tweaks and improvements to make sure that the transition is as seamless as possible”.

A Treasury spokesperson confirmed to AccountingWEB that the review into the off-payroll reforms in the private sector has now concluded and the results will be published shortly.

“We recognise that this is a significant change for businesses, and as the Chancellor has said, HMRC wants to take a supportive approach to help businesses to apply the rules correctly going forwards,” said a Treasury spokesperson.

The Chancellor’s comments come as a U-turn to HMRC’s position only a week ago when it spoke out against supporting a soft landing. At the Freelancer and Contractor Services Association (FCSA) members’ meeting in London, HMRC told FCSA members that “there will be no soft landing” whatsoever and it would be taking enforcement action as necessary.

HMRC’s stance was challenged at the time by FCSA members who pointed out that many large businesses are not ready for the changes due to HMRC’s education programme being deferred for a couple of months due to the December general election.

The readiness of businesses for the reforms has been questioned by the House of Lords’ Finance Bill subcommittee. In a recent hearing, representatives from accountancy’s professional bodies stopped short of calling for a delay, saying the “legislation is not yet ready” and there are still around 100 unanswered questions sitting with HMRC.

News of the soft landing has been welcomed by some within the profession who sought reassurance for contractors and employers.

Brian Palmer, tax policy expert at AAT, said: “While many organisations continued to call for a delay to implementation, AAT recognised that further delays were unlikely, so instead called for a 12 month ‘soft landing’ period, with no penalties or fines imposed on businesses who can demonstrate taking reasonable steps to comply.

“AAT is naturally pleased that the Chancellor has agreed with our proposal and believes this should provide some much-needed reassurance for both employers and contractors alike.”

But critics of the contentious reforms were left disappointed by Sunak’s position. For the CEO of Contractor Calculator Dave Chaplin, the Chancellor’s announcement gives contractors little hope for the results of the government’s IR35 review.

“Rishi Sunak, who after being crowned Chancellor has already made his first gaff, by effectively announcing that the results of a promised IR35 Review is going to result in no changes at all, despite mounting evidence of the damage it is already causing businesses across the UK,” he said.

“We are seeing firms halt or delay their projects, or moving 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.”

Source – Richard Hattersley

Practice Editor  AccountingWEB

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