Contact us: 01799 543222

IR35 – ready, steady…not ready?

IR35 – ready, steady…not ready?

The big issue which has been dominating the accounting world in recent months is IR35. Will businesses be ready when the reforms come in on 6th April? 

The overwhelming view expressed by representatives from various accountancy bodies is that they will most certainly not be, not least because legislation is still not finalised.         

IR35 was introduced in 2000 as an anti-tax avoidance rule, aimed at freelancers or contractors who were deemed by HMRC to be, in effect, working as employees. Under the new rules, every medium and large private sector business in the UK will be responsible for determining the tax status of any contractor they use. This has already been the case in the public sector since 2017.

HMRC is adamant that the reforms should go ahead in order to tackle the ‘fundamental unfairness’ surrounding the current non-compliance with the rules, which it believes could cost the Exchequer more than £1.3bn by 2023-24.   

However, the investigation by the House of Lords finance sub committee has revealed that there are still many uncertainties and unanswered questions. Despite the impending start date, the actual implementation rules are still being set out by HMRC. There is also concern that the CEST tool, which checks someone’s employment status, is still not up to the job.

Julia Kermode, chief executive of the Freelancer & Contractor Services Association, commented that there was mounting evidence that clients had been unable to fully prepare in advance of the April 2020 changes. She explained that a number of businesses were only just finding out about their new liabilities as HMRC’s education programme was delayed to do the general election. 

While large employers, who have in-house tax teams, may have been able to make some preparations, smaller businesses are thought to be less ready as they don’t have the expertise to understand the intricacies of the off-payroll reforms. And even if larger companies are in better shape, the view is that no one is truly prepared.

Businesses are disappointed that their calls for the reforms to be postponed have been ignored and feel that the review by the Treasury didn’t go far enough. They feel that the issues experienced by the public sector since 2017, with many contractors simply leaving and working elsewhere, have not been heeded. This has caused major problems with resourcing and recruitment in organisations like the NHS. There is also concern that some large companies will react by simply issuing a blanket ban and not hiring contractors at all. 

Although experts have welcomed the fact that the Treasury has promised a ‘soft landing’ in the first year of the reforms, they have warned that businesses in the private sector shouldn’t be complacent. The ‘light touch’ will still mean that HMRC will impose penalties if there is thought to have been deliberate non-compliance.   

Share this: