27 February 2020
The government has confirmed it will proceed with the planned extension of off-payroll rules into the private sector from April.
The confirmation came in a report from Treasury published this morning into the review of the implementation of the extension off-payroll working rules into the private sector.
However, having listened to stakeholders the government also revealed it is making a number of changes to address concerns, and support the smooth and successful implementation of the reform.
- Customers will not face penalties for errors relating to off-payroll in the first year – barring cases of deliberate non-compliance
- HMRC has reaffirmed that information resulting from changes to the rules will not be used to open new investigations into Personal Service Companies (PSCs) for tax years before 6 April 2020, unless there is reason to suspect fraud or criminal behaviour
- The government reaffirms the rules will only apply to services carried out from 6 April 2020 onwards
- The government will legally require clients to respond to a request for information about their size from the agency or worker, and update the legislation to address concerns raised over the rules as they apply to off-shore companies.
While HMRC has already published detailed guidance on the reform and clarified the position on a range of concerns raised – for example, the client-led status disagreement process, including by making explicit the time limits within which a disagreement can be raised – the Employment Status Manual guidance has been further updated in line with other outcomes from the review.
Although HMRC has already published a factsheet to support contractors prepare for the changes, and are continuing to step up their communications in the run-up to implementation, it will launch further products to support contractors in understanding the changes, including a self-help guide on how to spot tax avoidance schemes.
Government further committed to continue to listen to stakeholders, and monitor and evaluate the operation of the rules, while HMRC is to commission external research into the impacts of the reform six months after implementation, including on how status assessments are being made.
Commenting on today’s development, Samantha Hurley, director of operations at APSCo and co-chair of the government’s IR35 Forum, said the association’s members will welcome the extra time to adjust that the promised ‘soft landing’ offers.
“When the review into implementation was launched last month, APSCo made it very clear that we were not seeking a complete delay to implementation, but a period of time within which recruitment businesses and end clients wouldn’t be penalised. This was communicated directly to HMRC and other stakeholders, and we are extremely pleased this recommendation has been listened to and taken on board by the government.
“HMRC has long maintained that it genuinely wants businesses to comply with the new rules and that there will be no witch hunt – and this latest move suggests this may truly be the case. The fact that it has also published additional guidance to educate the supply chain is welcomed by APSCo.
“In addition, policy changes announced today also offer much needed clarity for our members. The fact that all businesses now have a statutory obligation to confirm whether or not they are ‘small’ takes the onus off others in the supply chain, while confirmation on the timeline for disputes is also welcomed. Many of our members will be particularly relieved that the rules will no longer apply to clients based wholly overseas, with the obligation to determine tax status in these instances moving back to the contractor.
“While there is no escaping the fact that the extension of off-payroll rules is not ideal, overall, this is a significant win for the professional recruitment sector and I’d like to thank all of our members who got involved, shared their experiences and contributed to this outcome.”
Sophie Wingfield, director of policy at the Recruitment & Employment Confederation, said: “It’s a positive move that the Treasury is putting the obligation on small businesses to declare whether the IR35 rules apply to them. This is a direct response to what the REC has been calling for and should provide recruitment businesses with much needed clarity on their obligations.”
In relation to the decision by HMRC to take a ‘light touch’ approach to enforcement, Wingfield added: “Taking a ‘light touch’ approach to enforcement in the first year will create more problems than it solves. The consequences of not complying with tax law should be clear. Not doing so could create an unlevel playing field where compliant employers lose out to unethical ones. We need to see more details about how this approach will work in practice. What’s obvious from this is that the Treasury know IR35 is not quite right. Rather than tinkering around the edges of this complex legislation, we need the government to delay implementation until 2021 to make sure it’s done properly.”
While welcoming government’s promise of a soft landing in implementation of the rules, Julia Kermode, CEO of the Freelancer & Contractor Services Association (FCSA), added she is cautious that this may cause more confusion if clients and contractors are misled into thinking that the legislation has been delayed or will not be enforced.
“We have confirmed with HMRC that the soft landing is genuine and that penalties won’t ordinarily be applied for the first 12 months of implementing the reforms. This is good news because HMRC’s education programme was delayed due to the general election, so a number of businesses are only finding out about the reforms and their new liabilities now, just weeks before the legislation comes into effect. However, the soft landing does not mean that businesses and individuals can plan to ignore the changes because HMRC has also confirmed that penalties will be applied where there is deliberate non-compliance.
“FCSA also welcomes the clarity regarding overseas clients being out of scope, plus the amendment requiring clients to confirm whether or not they are small so that the supply chain can ascertain if the new off-payroll rules apply.
“It has been clear to me for some time that HMRC has been hell bent on planning to implement the off-payroll reforms this April come what may, and the publication of their review clearly shows that these reforms are coming whether we like it or not. I can’t see the budget on 11 March bringing about a U-turn, so it would seem that the House of Lords inquiry into the legislation is the last hope to affect any meaningful change.
“Having given evidence to the House of Lords this week, it was clear that they were listening to the various representations, and I did get the distinct impression that they were not supportive of the legislation. Time will tell as to whether or not they can make a difference but, in the meantime, I would strongly urge everyone to prepare for the reforms as penalties will still be issued for deliberate non-compliance.”