The government has launched a review into the forthcoming changes to the IR35 off-payroll rules, due to come into force in April, in response to concerns over how the private sector rollout will affect businesses and contractors.
The consultation, announced by Jesse Norman (pictured), financial secretary to the Treasury, will determine whether further steps can be taken to “ensure the smooth and successful implementation” of the changes, and whether more support is needed to ensure self-employed people who ought to fall outside the IR35 rules are not affected.
“We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules,” said Norman. “The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”
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But while the review – which was promised during the election campaign – has been welcomed by some, it also confirms the government still intends to push forward with the rollout in April despite calls for it to be delayed or cancelled altogether.
IR35 legislation aims to ensure workers undertaking similar roles in the same organisation pay the same tax, regardless of whether they are an employee or a contractor working ‘off payroll’. Employers using contractors who are covered by IR35 are required to deduct income tax and national insurance from their pay as if they were an employee.
Under the reforms – which have been in place in the public sector since 2017 – the responsibility of deducing whether contractors are covered by the rules moves from the individual contractor to the employing organisation.
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However, many employers have already raised concerns about potentially missing out on skilled contractors and temporary professionals as a result of the changes if they are forced to make tax deductions on their earnings.
Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed, warned that “major businesses... have already announced they will no longer engage contractors out of fear they will fall foul of the notoriously complex legislation”, adding that the government must “urgently reconsider” its plans.
There have also been complaints over the reliability of the tests employers are expected to use to determine if a contractor is caught by IR35, specifically the Check Employment Status for Tax toolkit provided by the government, and concerns raised from self-employed groups that organisations could impose blanket bans on the use of contractors to limit their liability.
Neil Carberry, chief executive of the Recruitment & Employment Confederation, said that a review was “the right call”, and welcomed the fact that further opportunities for engagement had opened up, but added that “pushing ahead with an approach to taxing contractors that is not fit for purpose will punish ethical businesses, incentivise non-compliance and harm workers”.
He urged the government to delay the rollout, adding that such a delay would “afford businesses a more reasonable amount of time to prepare at a time when they are facing an unpredictable economy and major skills shortages”.
Simon Winfield, managing director at recruitment firm Hays UK & Ireland, added that there “simply isn’t enough time to give this the attention it so desperately needs” if the reforms still come into effect in April. “A number of industries are suffering from niche skills shortages and these reforms could worsen these gaps,” he said.
Matt Fryer, head of legal services at Brookson Group, said private sector businesses should take the review announcement as “solid confirmation” that the legislation will be coming into effect this April, adding: “Anyone who has not taken the necessary action to prepare yet should do so now.
“The best that can be hoped of the review is that it will address the concerning trend of large users of contract labour bypassing their obligations under the new rules by enforcing blanket bans on the use of contractors in their supply chains.”
He also urged HMRC to “educate, rather than seek to punish, businesses that have not been able to get their house in order” in the first year after implementation.
However, Nick Woodward, CEO and founder of ETZ Payments, said the fact the review had come so soon in the new year showed commitment on the part of HMRC, adding that the review and its recommendation will hopefully provide “swift clarity”, to those concerned about the reforms.
The Treasury said it will launch a separate review to explore how it can better support self-employed individuals potentially affected by the reforms, but the implementation review would conclude in mid-February.