With just a few weeks to go until they take effect, the impact of the changes to the off-payroll working rules (also known as the IR35 rules) remain under the spotlight in the tax and accountancy professions.
From April 2020, to increase compliance with the existing off-payroll working rules, medium and large organisations in all sectors of the economy will become responsible for assessing the employment status of individuals who work for them through their own limited company. HMRC expect the changes to impact some 170,000 freelancers and 20,000 agencies that provide workers to medium and large-sized organisations.
Speaking at an event in Birmingham recently, newly-appointed Chancellor of the Exchequer Rishi Sunak indicated that the private sector reforms would have a soft landing when they come into effect in April. He said that he had "spent time with HMRC to ensure they are not going to be at all heavy-handed for the first year to give people time to adjust as well, which I think is an appropriate and fair thing to do."
At the time of speaking, Mr Sunak also alluded to certain further changes being made. This has subsequently been backed up with the publication of Review of changes to the off-payroll working rules: report and conclusions, which confirms that the reform will go ahead in April 2020, but certain tweaks are being made to address concerns and support the smooth and successful implementation of the reform. Broadly, the changes mean that:
- the rules will only apply to services carried out from 6 April 2020 onwards;
- taxpayers will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance;
- HMRC confirm their previous commitment that information resulting from changes to the rules will not be used to open new investigations into personal service companies (PSCs) for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour;
- the Government will place a legal obligation on clients to respond to a request for information about their size from the agency or worker, and it will update the legislation to address concerns raised over the rules as they apply to off-shore companies; and
- HMRC will be launching various products to support contractors in understanding the changes, including a self-help guide on how to spot tax avoidance schemes.
The soft landing approach does not mean that those affected can rest on their laurels - whilst the report will be welcomed by some within the profession, many contractors and employers will still need to proceed with caution.
Sarah Laing is an author for accountingcpd. To see her courses, click here.