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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
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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 ContractorCalculator 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.”

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Replies (14)

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By neiltonks
25th Feb 2020 15:18

I'm not sure this actually helps much. 'Heavy handed' has no precise meaning so contractors and engagers won't know how the Chancellor's assurance will be interpreted in practice until it's too late. After all, it could mean anything from not being nit-picking to not enforcing it at all! I can't see this calming the risk-averse "never in IR35" attitude of large businesses.

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By memyself-eye
25th Feb 2020 16:13

Nice - a soft landing for its' customers - wonder what Eamon Holmes thinks of that.

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By ChrisA
25th Feb 2020 16:45

Not sure it will make much difference. There appears to be a blanket approach from “employers” my contractor clients deal with.

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By SteveHa
26th Feb 2020 09:39

I rather think that "Chancellor Rishi Sunak spoke at an event in Birmingham" should be re-phrased to "Chancellor Rishi Sunak read from a script given to him by Dominic Cummings at an event in Birmingham"

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By tonyaustin
26th Feb 2020 10:09

All in favour of a soft landing, within reason but these new rules are basically the PAYE regulations applied to contractors using an intermediary, such as their personal service company, instead of being employed directly. Large employers have had a blanket ruling on individuals for many years, either taking them on as employees or making them use a company to avoid the PAYE regulations, which make the employer liable for payment to HMRC of income tax and NIC.

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Dave Chaplin
By Dave Chaplin
26th Feb 2020 10:10

Really looking forward to the accompanying "Soft Tax Landings Act 2020", which amends the Taxes Management Act 1907 to define with certainty (thereby producing finality) over what "soft landing" or "heavy-handed" means in specific terms.

We wouldn't want HMRC to be accused of stoking fear and uncertainty to drive firms to make "better decisions for themselves" as a result of any ideas that have emerged from behavourial science (aka propaganda) or the concept of "Tax Morality", explored at OECD conferences and referred to as "nudge theory".

Nothing to see here.

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By Ian McTernan CTA
26th Feb 2020 10:18

Too late for too many, as the engagers have in the main taken a blanket approach of applying IR35 and shifting everyone into umbrella companies or PAYE.

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Replying to Ian McTernan CTA:
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By norstar
26th Feb 2020 10:44

Agree with that. Almost all of my service company clients have been forced to go Umbrella or look at other arrangements.

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By Duggimon
26th Feb 2020 11:09

What's the point in even commenting at all? It's been done and the engagers, including those engaging companies clearly operating outside of IR35, have already made their changes.

What a pointless statement from a pointless man.

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By Rammstein1
26th Feb 2020 11:23

Well summed up. It's a sad day for genuine contractors when the Tories turn against them.

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By philaccountant
26th Feb 2020 13:32

Tories have been in power a decade and have been grinding away at this the whole time. Could hardly be described as anything but more of the same.

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By tedbuck
26th Feb 2020 15:03

Well if we thought that this Government was going to start using its brain we are all going to be disappointed. I saw also that the BTL squasher of right to buy and controlled rents was rearing its head again as well.

The contractors I act for are looking to work overseas so out of the window of UK tax goes their productivity and BTL people who have saved to build for their retirement are going to be scr**ed even further to shine up the virtue signalling of this Socialist Government. So that will mean that for taxpayers to try to invest for retirement in future will mean them finding an investment overseas so more money will leave the country. Almost might as well have had Corbyn and been completely Stuffed!

As for HMRC I doubt that they appreciate what a mess they are causing - more virtue signalling so that they can hide their own inefficiency and inability to run their clever computers behind someone else's cost and systems. And HMG will sit there bemoaning the fact that we aren't productive enough in the UK whilst collecting more money off us all by the ICO levy and other stealth taxes.

I am personally sick and tired of the hypocrisy of the whole endeavour

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By Moo
27th Feb 2020 09:02

Of course any tightening of IR35 makes it easier for the less aware contractor to be sucked into one of these pernicious loan schemes which are frequently marketed as being umbrella companies. Please could people warn clients that offshore registered umbrella companies should be treated with great caution. We have several contractor clients who have used them in the past and have learnt that an umbrella operating from the Isle of Man invariably means bad news.

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By Jdopus
27th Feb 2020 13:20

This entire situation is just another victory for big companies in convincing the government to make their employees eligible for the Employer's NIC they don't want to pay and the employment rights they don't want to honour. IR35 is a disgusting piece of legislation which runs roughshod over every existing piece of employment legislation.

Not at all surprised it turned out this way after HMRC's decision to pursue employees who knew nothing about tax law for the tax that should have been liable when they were told by their employers that they had to become contractors or get the sack.

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