After announcing in January that they would be reviewing the rollout of IR35 in the private sector, following concerns from business, the government has published its findings.
The good news is that “Customers will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non- compliance”.
Plus, the new rules will only apply to payments made for services provided on or after 6 April 2020, when the changes come into force.
In the review, the government said it had listened to the concerns and had changed its approach “where appropriate to better support affected businesses and individuals.”
The news however does confirm that the government remains committed to IR35 something that is bound to anger industry insiders and employment groups.
These groups have, since the controversial IR35 measures were implemented, continued to urge the government to suspend the new tax regulations or risk damaging the economy as they predict the reforms will lead to a third of self-employed contractors stopping freelancing over non-compliance fears.
Under the reforms private sector employers will now have the added responsibility of assessing whether or not a contractor needs to pay income tax or NI contributions to prevent tax avoidance by “disguised
employees”, those people being paid through a company despite working like an employee.
The Treasury has said that “disguised employees” are forecast to cost the Exchequer more than £1.3bn a year by 2023/24 if it remains unaddressed.
Industry insiders however claim that the reforms push freelancers and contractors into a kind of pseudo employment but without any of the benefits or protections of actual employees.
There are also growing fears that private sector companies will be too risk averse and will place contractors under the regulations if there is the slightest doubt.
Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed argues that the review should have been independent of the government.
He said: “These off-payroll rules will be catastrophic for the contracting sector and will do serious damage to client businesses and the wider economy.
“Many businesses are already scrapping their contractor workforce because of these changes and our research shows at least a third of freelancers plan to stop contracting in the UK because of them. We continue to urge the government to rethink this disastrous policy before it is too late.”