The Government has published the results of its post-election IR35 review. As expected, nothing of any substance has been announced, although HMRC has promised to take a ‘soft’ approach to compliance during the tax year following the April 2020 off-payroll private sector changes.
Background to this IR35 review
Prior to the 2019 General Election, several high-profile Conservative MPs, including the then-Chancellor Sajid Javid, promised to undertake a review of the IR35 rules as a priority.
Unfortunately, when the review was announced, it was clear that the legislation itself was not going to be looked at in any way; the focus would merely be to ensure that the April 2020 private sector changes are rolled out as smoothly as possible.
And, this is exactly what has happened.
What does the review say?
The document summarises the history of the IR35 and the justification for the off-payroll ‘add-on’. It also lists the documents and tools HMRC have published over the years, with the intention of helping its ‘customers’ to comply with the rules.
Essentially, the private sector roll-out will go ahead still in April 2020; there will be no delay.
No further concessions or changes have been made as a result of the review.
The only headline-grabbing announcement from the review is that HMRC has pledged to apply a light touch to compliance during the first year of the private sector operation (2020/2021).
Section 4.6. states that 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.”
But even then, this is hardly a concession. This pledge is not legally-binding, and it only applies to penalties, not necessarily to any tax liabilities subsequently found to be owed following an incorrect status determination.
What does the ‘light touch approach to penalties’ actually mean?
We asked Seb Maley, CEO of Qdos Contractor what HMRC’s promise means in reality:
Do you think HMRCs pledge to apply a light touch to compliance in 2020/21 will give clients more confidence to assess contractors fairly, rather than applying blanket bans?
“Possibly, but in reality, it isn’t the penalties that are driving companies to make blanket IR35 decisions. Companies are more likely to make blanket assessments or ban contractors altogether because of the tax liability that would be owed for getting things wrong.”
2. Is this pledge legally binding, or could HMRC renege on it, as they have done elsewhere?
“Having it in writing in the final legislation may offer some comfort to companies unsure of how to handle the changes, but I’d be surprised if it changes a firm’s approach entirely. And that’s not to say this ‘light touch’ is set in stone – HMRC has broken its promises in the past.”