The IR35 Review
While you’ll have doubtless seen the headlines, in both the specialist financial press and the national papers, that the government is ‘reviewing’ the IR35 legislation, it’s not time to break out the champagne just yet.
As reported in Accountancy Age, the intention is to “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.” More specifically, they report Jesse Norman, Financial Secretary to the Treasury as saying: “We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules (and) the purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.” The Chancellor seemingly went further, stating: “I want to make sure that the proposed changes are right to take forward.”
The announcement of this review was made on 7th January, and since the initial enthusiasm that greeted the prospect of making sure that these changes “are right to take forward,” there has been a mini-avalanche of subsequent articles pouring scorn on the likelihood that much will be altered.
For example, on 9th January, Personnel Today announced “IR35 review will not change legislation,” while Contractor UK’s headline claims “Contractor sector calls Sajid Javid’s IR35 reform review an insult,” and IT website The Register suggests that, “Like a broken pencil, say contractors groups – it'll be utterly pointless.”
In our view, the review is largely a box-ticking exercise and while we should wait to see what exactly the government does as a result of it, we don’t think anyone should expect any major changes. IR35 for the private sector is happening in April. And if you were in any doubt…
HMRC releases a new Factsheet
On 13th January, the Accountancy trade press announced that HMRC has put together a new factsheet to help contractors understand IR35. The factsheet itself can be found on the government website here and the Accountancy Daily commentary can be found here.
There are several things we think are worth saying at this point. The first is to wonder why it’s taken until mid-January for this to be produced…? Secondly, we don’t think this factsheet actually tells us anything particularly new. Thirdly, HMRC is nailing its colours to the mast with the following:
“Depending on your own personal circumstances the terms of your contract may change. It is also possible that you will pay additional income tax and NICs if you had not previously been applying the off-payroll rules (IR35) correctly. However, HMRC will not use information resulting from these changes to open a new enquiry into earlier years unless there is reason.” (our underlining).
This ties in what the gov.uk website says about the review.
“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. As part of this, the review will also assess whether any additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted.” (our underlining).
The reality, one would hope, is that anyone who is not within the scope of the new rules would most certainly not be “impacted” – with or without a review. Nor should anyone who has acted legally in the preceding period be subject to an enquiry. We would earnestly hope that HMRC sticks to this: if examples subsequently arise of contractors who have acted lawfully in the past being harassed it will create a lot of bad feeling.
Getting legislation water-tight ought to be a basic prerequisite of good government. The fact that the government website feels obliged to state these things suggests that it might not be entirely confident that HMRC will not pursue at least some individuals who are entirely on the right side of the law. To that end, if the review does prevent this that will be welcome, but it’s important to realise that nothing in this review seems likely to stop the new law coming into force this April and having an impact on many different industries, particularly IT.
With all this in mind, we’ll be keeping our eye on further developments, including what we pick up from the tax/accountancy trade press and industry bodies. These, perhaps understandably, are often more objective than media that specialise in contractors and IT. And rest assured, we’ll report back so you can be as fully informed as possible as the changes start to be implemented.
Stewart McKinnon, Director, M&S Accountancy and Taxation and Gareth Biggerstaff, CEO, Be-IT