Yesterday, it was announced that the Government is to review the implementation of the IR35 reform. These changes, which have been in effect in the public sector since 2017 and are due to come to the private sector on 6th April 2020, mean that contractors are no longer responsible for their own employment status and must instead have it determined by whoever pays their fees, whether that’s the client or recruiter. This has caused multiple knee-jerk reactions across the finance and pharmaceutical sectors in the name of compliance, resulting in mass contractor exodus – both forced and voluntary.
Chancellor Sajid Javid promised a review of IR35 on the runup to the General Election as part of a wider tax review for the self-employed. What elements of the legislation will be reviewed, and can we expect any meaningful change?
You can watch the full House of Commons debate here.
Will the IR35 review bring substantial change?
The Government has committed to a review of the changes to the off-payroll rules, starting as of yesterday. However, instead of looking at the rules themselves – as many took the Chancellor’s promises to mean - they’ll be concentrating on how the rules are applied.
The official statement released after the House of Commons debate stated that the Government would be ‘gathering evidence from affected individuals and businesses to ensure smooth implementation of the reforms’. While this will go some way to addressing the concerns raised since the new off-payroll rules were rolled out to the public sector, industry experts have expressed disappointment at the announcement.
Matt Tyler, IR35 Consultancy Manager at Larsen Howie, says you should carry on preparing for the off-payroll rules regardless.
“Unsurprisingly, HMRC appears to be proceeding with the changes to IR35 for the private sector slated for April 2020,” Tyler says. “This will not come as a shock to many who have started to, or already have, prepared for the forthcoming changes but if you were pinning your hopes on sweeping reform, I would suggest acting now on the basis that what’s already been proposed will go ahead. There will doubtless be some minor changes to how the legislation is implemented as a result of this announcement to smooth out the rough edges, but I wouldn’t expect any significant legislative changes.”
The statement, which you can read in full here, confirms that ‘the review will focus on the implementation of these reforms, which are due to come into force on 6 April 2020.’ Although the Budget (scheduled for March 11th) will cement if IR35 will indeed still be applied in the private sector from this date, it appears that the Government has no intention of delaying the rollout.
Chancellor Sajid Javid promised to review ‘proposed changes to IR35’
During an appearance on BBC Radio 4’s Moneybox before the General Election, Chancellor Sajid Javid said the anticipated private sector IR35 changes would be reviewed should the Tories retain their government, and that he wanted to ensure the reforms were ‘appropriate’ before being rolled out. He asserted that the legislation would be included as part of a ‘wider investigation’, as promised in the Tory manifesto, that will ‘look into how new policies could help freelancers’.
“One thing, in particular, I want to look at is the proposed changes to IR35, these are the tax rules that apply to many self-employed people, particularly those that work as consultants,” Javid said while speaking to Moneybox host Paul Lewis. “I want to make sure that the proposed changes are right to take forward so we will be having a review of those proposals and changes as part of our wider self-employment review.”
Implementation of IR35 reform is to be reviewed, not the legislation itself
In contrast to this, however, Financial Secretary to the Treasury Jesse Norman’s statement following yesterday’s announcement specified just the implementation of the off-payroll rules would be reviewed.
“We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules,” Norman says. “The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”
“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,” he continues. “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 off-payroll working rules do not affect the self-employed, as only those working like employees are in scope. As part of the review, the Government will explore whether there are any further steps it could take to support businesses in correctly determining employment status.”
Julia Kermode, CEO of the Freelancer and Contractor Services Association, was among those that felt let down by the announcement. In a comment to ContractorUK, she said: “The review [focusing] on the implementation of the reforms rather than the reforms themselves…is not what was suggested [by Mr Javid]. [And it] is not what is needed. I fear that today’s [announced review] is simply the government paying lip-service to empty election promises and [is] nothing short of an insult.”
Keep preparing for IR35
Businesses and contractors should continue to prepare for the IR35 reform regardless of the review announcement. There are steps you can take, no matter where you sit on the supply chain, to make sure you’re ready for the changes; contract and working practices reviews are the first port of call while educating yourself about what the off-payroll rules mean for you is crucial to staying on the right side of the legislation.
However, the most important thing to remember when preparing for IR35 is that collaboration is key. Maintain good communication during the whole process and encourage openness throughout the supply chain to minimise the potential for any nasty surprises.
Larsen Howie offers a range of contract and working practices reviews – you can find out which option would be best for you here. We also offer IR35 investigation insurance with representation from Andy Vessey ATT, should it go to tribunal.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.