The UK’s new Chancellor, Rishi Sunak, guarantees that HMRC will not be “heavy-handed” in pushing its IR35 tax reforms.

According to HMRC

 “Customers will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance”.

Sunak has offered reassurance to contractors that HMRC will ensure a soft landing for the first year while implementing the IR35 rules.

This means that HMRC will not impose strict penalties on businesses that breach the rules during a period of adjustment.

 IR35 reforms are due to come into effect in April in spite of a furious lobbying campaign by freelancers and businesses to halt the reforms.

The new law will require all companies — apart from those with fewer than 50 employees or less than £10.2m annual turnover — to assess the employment status of any person they hire, who works through a limited company.

Companies and their recruitment agencies will be liable for unpaid tax if HM Revenue & Customs finds that a worker has been wrongly classified.

What did the New Chancellor, Sunak say?

Sunak, speaking at an event in Birmingham, defended the government’s plans to forge ahead with the controversial reform. But he assured that tax officials would take a soft approach to the new rules for the first year.

He added: “I’ve spent time with HMRC to ensure it is 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.

 “We are shortly to publish a review of how it should be implemented with some tweaks and improvements to ensure that the transition is as seamless as possible.

 “What IR35 does is change the balance so instead of people making the assumptions about how they should be taxed, we put the onus on the company to make that assessment for them.

Despite of frequent criticism,Sunak defended the government’s decision to push ahead with the changes.”Nothing has changed in the law,” he said.

“We’ve always had a law which means that you should pay the taxes for the type of work you have. What’s been clear is, for a long time, those laws haven’t always been followed.”

“It’s not fair to all the people who were employed that someone else [who] could be doing the same job is paying less tax – and ultimately that tax pays for the NHS, and social care, and everything else.

Sunak said we should correct the unfairness which will mean a change for some people.

See also IR35 off-payroll working rule changes

The IR35 is a set of tax reforms first unveiled in 1999 by the then Inland Revenue (now HMRC). The reforms will push businesses in the UK to set the tax status of their contractors and freelancers.

Previously contractors set them by themselves.

The Contractors – “inside IR35” – will have to pay the same tax and NIC as full-time employees. They will not receive the same benefits, such as holiday or sick pay, or parental leave.

Hence, the government plans to crackdown on so-called disguised employment.

Whereas,HMRC reveals that only 1/10 contractors in the private sector are following the current rules correctly.

It estimates the reforms will recoup £1.2bn a year by 2023.

 

 

Critical Analysis:

However,critics say that the reform has scared private companies away from employing contractors. A slate of big companies have said that they will no longer hire contractors.

They fear that their firms will fall foul of the complex assessments. These assessments determine whether a contractor is in scope of IR35.

other companies appear to be applying a blanket determination that puts all their contractors inside IR35. Insiders say that this is putting major projects at risk.

The concession hints at a softer approach from Sunak. The government will publish the results of its review of IR35 changes before the Budget on 11 March.

CEO- Qdos- Contractor,Seb Maley’s advice:

 “My advice to those impacted by reform is to take the chancellor’s promise with a pinch of salt.” 

He added that HMRC’s IR35 legislation policy has been aggressive in recent years.They often chose to pursue  self-employed contractors.

Andrew Chamberlain’s point of view:

“You’d end up with thousands of IR35 claims, and as we know they go on for years,” said Andrew Chamberlain, from the Association of Independent Professionals.

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