New off-payroll tax rules will be introduced in April but not enforced heavily for 12 months, the government has confirmed.
The rules, called IR35, were introduced in 2000 to combat tax avoidance by people being paid through a company despite working like an employee. Reforms first announced in the 2018 Budget will make medium and large companies responsible for checking the tax status of their contractors.
A review, carried out by government after complaints from industry about the lack of awareness of the new rules, has been published and confirms HMRC will take a “light-touch approach to penalties”.
“Customers will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months unless there is evidence of deliberate non-compliance,” it said. The Treasury said it will also offer one-to-one “education discussions” with large businesses and agencies, and offer online seminars to all companies affected by the changes.
It has also clarified that rules will only apply to payments made for services provided on or after 6 April 2020, when the changes come into force.
Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed said the review should have been independent of 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.”
Seb Maley, CEO of tax consultant Qdos said: “While applying a ‘light touch’ to reform for the first 12 months has been welcomed, this is a red herring. It only applies to ‘penalties’, not necessarily tax liability owed as a result of inaccurate IR35 determinations. Therefore, private sector companies should not pay too much attention to this.
“My advice to private sector firms is to continue preparing without relying on HMRC for support.” He added “risk-averse and panicked assessments” should be avoided.
The Treasury said non-compliance with off-payroll working rules is forecast to cost the Exchequer more than £1.3bn a year by 2023/24 if it remains unaddressed.
Earlier this week, Electrical Contractors' Association (ECA) director of legal and business Rob Driscoll told Construction News that a shift towards direct employment in the industry could be a good thing as it faces a skills crisis.
The article was originally seen at: https://www.constructionnews.co.uk/financial/ir35-penalties-for-mistakes-wont-apply-for-first-12-months-27-02-2020/