Government announces review into IR35

A review into IR35, promised by Sajid Javid in the run up to the election, has been launched by the UK government. While this will come as welcome news for some, contractors will fear that it doesn’t go far enough, and simply confirms that the new rules are going ahead

On 7th January 2020 the government launched a review into the new off-payroll working rules, known as IR35, that are due to come into effect on 6 April 2020.

The review will gather information from affected individuals and businesses, with the government saying it aims to address any concerns about how the IR35 rules will be implemented.

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.”

Chancellor Sajid Javid made a commitment to launch a review into IR35 in the run up to the election, saying at the time: “I want to make sure that the proposed changes are 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 new rules make companies responsible for assessing whether a contractor should be considered a full-time employee in the eyes of HMRC, bringing them in-line with the public sector. Previously, it was up to the worker’s personal service company (PSC).

Now, the party which pays the contractor will be required to operate PAYE or NICs as appropriate, making the hiring of contractors less attractive to medium to large businesses that IR35 applies to.

The news that the government is reviewing IR35 rules, which have come under heavy criticism from contractors who would be most affected, will be welcome, the finer details of the review will also be a blow to those who had hoped that the government might consider repealing IR35.

A petition requesting the government to repeal received over 30,000 signatures, but was closed in November, with the government responding: “The off-payroll working rules have been in place for nearly 20 years. They are designed to ensure that individuals working like employees, but through their own limited company, pay broadly the same tax and National Insurance contributions (NICs) as those who are employed directly.

“The rules support a fair tax system by ensuring that two individuals working in a similar way for the same employer pay broadly the same tax and NICs, even if one of them structures their work through a company.”

Figures in the contractor community have reacted negatively to the review announcement, with Julia Kermode, Chief Executive of The Freelancer & Contractor Services Association (FCSA), saying: “This seems to be another meaningless review from a Government who seems intent on bulldozing ahead with its plans anyway. They are expecting the review to be completed by mid-February which is simply not long enough to consider the deeply complex range of issues that the Off-Payroll legislation is throwing up.

“HMRC has stated that it will be continuing its preparations to roll out the reforms in April come what may. We have also learned today that the review will focus on the implementation of the reforms rather than the reforms themselves which is not what was suggested and is not what is needed. I fear that today’s pledge is simply the Government paying lip-service to empty election promises and nothing short of an insult.”

Smooth IR35 implementation

The review, which the government aims to conclude as early as February, will determine if any further steps can be taken to smoothly implement the reforms, and a separate review will assess whether any additional support is needed to ensure that the self-employed, who are not within the scope of IR35 rules, are not impacted.

This will include improving access to finance and credit, making the tax system easier to navigate and consideration of how better broadband could boost remote working opportunities.

While a review is a sign of progress it doesn’t mean the changes will be scrapped

The government has said that it will conduct a series of roundtables with stakeholders and representative of those who will be affected by the reforms, including contractor groups and medium to large-sized business.

The government has also committed to carry out further internal analyses, including an evaluation of the enhanced Check employment status for tax (CEST), which was updated in November.

Seb Maley, CEO of Qdos, said that this announcement signals that while the review fulfils the promise made by Javid, the government’s intention to still go ahead with the updated IR35 rules, saying: “The government has delivered on its promise to review IR35 reform. The fact that it will conclude before the introduction of the changes in April is also important.

“However, while a review is a sign of progress it doesn’t mean the changes will be scrapped. HMRC itself has said this review is to make sure reform is implemented smoothly, suggesting the government has every intention of rolling out needless changes irrespective of any findings.”

Maley added: “That HMRC is still under the illusion that IR35 reform only affects those ‘working like employees’ also shows just how out of touch the government is with regards to the true impact of the changes.

“Given the legislation applies to payments made on or after 6th April, which typically covers work carried out in March, there is very little time for the government to make any improvements once the review has concluded in February.

“The government also claim those who don’t comply with IR35 pay significantly less income tax and NICs than an equivalent employee. This is misleading, given the majority of tax paid on behalf of an employee is employers’ NI. HMRC must stop painting the picture that it is the worker dodging tax.

“Taking everything into consideration, our advice to contractors, agencies and private sector businesses is to assume changes will be enforced and prepare immediately.”

Deadline looms and concern will remain

Some companies have already gone as far as to establish a blanket ban on the hiring of contractors, afraid that the new IR35 rules will make hiring contractors too costly and time consuming. One example is GlaxoSmithKline, who reportedly ordered 1,500 contractors to sign on to PAYE or face the cut. Some banks are also reportedly taking the same approach.