With the April implementation date for new off-payroll working rules in the private sector fast approaching, HMRC has launched a long called-for review to address widespread concerns about this significant change in UK tax law.During the 2019 General Election campaign, each major political party pledged to review forthcoming changes to off-payroll working in the private sector (colloquially referred to as IR35), which come into effect on 6 April 2020.
Following the Conservative Party's "stonking" electoral victory in December, on 7 January HM Treasury published details of its promised Review (see here).
What can businesses expect?
Speaking on BBC Radio 4’s Money Box programme in November, Chancellor of the Exchequer Sajid Javid said he wanted to make sure the proposed IR35 rules were “right to take forward”.
“We’ve already said that we’re on the side of self-employed people. We will be having a review and I think it makes sense to include IR35 in that review.”
The comments were widely welcomed by private sector businesses and contractors, many of which have expressed frustration with HMRC's process for determining employment status for tax purposes.
IR35 reform was set in motion under Theresa May's premiership in the 2016 Budget, with the first phase rolled out in the public sector in 2017 and its extension to the private sector confirmed in the 2018 Budget.
Given the well-publicised wrangles between HMRC and employers following the introduction of IR35 to the public sector, and subsequent reports of skills shortages in some industries due to changes in the tax status of contractors, many in the private sector had hoped the enlightened next phase would be smoother.
Regrettably, the Review, the details of which have now been published, does not appear equipped to address many of the most significant concerns raised.
The policy document states that the Review is intended (our emphasis):
"[T]o address any concerns from businesses and affected individuals about how [new IR35 rules] will be implemented.
"The review will determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms, which are due to come into force in April 2020."
Contrary to speculation that Boris Johnson's administration would delay the implementation of new IR35 rules, the policy document suggests the roll out will proceed as planned, in April 2020.
The Review goes on to say that:
"As part of the review, the Government will hold a series of roundtables with stakeholders representative of those affected by the reform, including contractor groups and medium and large-sized businesses, to understand how the government can ensure smooth implementation of the reforms.
"The Government will also carry out further internal analysis, including evaluation of the enhanced Check employment status for tax (CEST) tool and public sector bodies’ experience of implementing the reform to the off-payroll working rules in 2017."
The Review is set to "conclude by mid-February", leaving very little time to apply any modifications that are suggested and adopted following stakeholder consultations.
Commenting on the review, Financial Secretary to the Treasury Jesse Norman said:
“We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules.
“The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”
While the Finance Bill 2019-20, which implements the IR35 rules, is yet to traverse Parliament (meaning further change remains possible), substantive amendment seems unlikely.
With only three months to go until the IR35 rules are due to come in to effect, businesses set to be impacted should prepare now, if they have not already.
For businesses with large contractor workforces, the process of reviewing the current position, evidencing compliance and change implementation can take several months.
However, with appropriate advice and support, getting a business ready for IR35 and managing associated risks, such as disputes with contractors, employment law and pensions issues, can be achieved in time.
Whatever the outcome of the Review, HMRC will expect businesses to have taken steps to comply with the spirit of the legislation, even if the details are yet to ironed out.
For more information on IR35 and how to prepare, please get in touch and ask about our complete IR35 Audit service, or visit Fieldfisher's dedicated IR35 webpage.