IR35: Chancellor makes review pledge

The Chancellor of the Exchequer, Sajid Javid, has pledged to review the off-payroll IR35 legislation, while speaking on BBC Radio 4’s Money Box programme.

The pledge comes as part of the Conservative Party’s manifesto in its bid to support self-employed workers, saying that “one thing in particular” he wanted to review was the proposed changes to IR35.

Mr Javid said: “I want to make sure that the proposed changes are right to take forward. We’ve already said that we’re on the side of self-employed people. We will be having a review and I think it makes sense to include IR35 in that review.”

The legislation currently applies to the public sector, but as of 6 April 2020 the regulation will also apply to contractors and employers in the private sector.

This will mean that employers will have to re-assess contractors they hire and determine whether they should be classed as a full-time employee for tax purposes.

HMRC has claimed that the taxpayer could be missing out on up to £1.2bn a year by 2023 due to contractors and employers getting the rules wrong, and as a result paying tax as if they are self-employed. Critics of the regulation, however, say that IR35 could reduce a worker’s net income by 25%.

Javid and the Conservatives are not the first party to pledge a review into IR35. Labour, the Liberal Democrats and the SNP have made commitments to review the extension of IR35 rules into the private sector. The Liberal Democrats and SNP have also both pledged to stop the Loan Charge.

Bill Esterson, shadow minister for Small Business, said: “We absolutely can’t see it rolled out into the private sector the way things are at the moment.

“We need to support the self-employed in this country. We need to make sure that our tax system is diverse so that it matches the needs of being self-employed and is also consistent with the risk that is taken.”

However, the Labour manifesto makes no mention of IR35, and  making the party’s official position on the regulation unclear.

In its manifesto on page 21, the SNP pledged it would open “a review of the tax rules around intermediaries – known as the IR35 tax rule – and problems with implementation of the Loan Charge.”

Music to accountants’ ears

Javid and the other party’s pledges to review IR35 will come as welcome news for accountants too. As reported in November by Accountancy Age, accountants are finding that they are losing clients, as many of their private sector clients opt to go for PAYE ahead of the IR35 2020 deadline and therefore no-longer require their services.

According to Anthony Sherick of Contractor UK, based of how banks, such as Lloyds, are approaching the new regulations, many private sector businesses could cease to hire contractors, prompting more to opt for PAYE.

He said: “Unfortunately, some of the banks are making blanket assessments for IR35 based on current contract renewals in advance of April 2020.

“There are amazing opportunities in technology for the UK economy – but this ‘attack’ on flexible working, alongside ongoing Brexit uncertainty, will do more harm than any monetary benefits to HMRC.

“Contractors will need to assess their opportunities and prioritise any outside IR35 roles, look for rate rises or working abroad contracts. Overall, this will reduce competitiveness in the UK economy,” Sherick said.

CEST Tool Review

Javid’s comments come a week after HMRC updated the Check for Employment Status for Tax (CEST) service, an online government tool used to find out whether a contractor or employer should be classed as employed or self-employed for tax purposes, and in-line with IR35 legislation.

Criticisms had been levelled at the tool, with many saying that it is not fit for purpose, often not delivering a definitive answer in cases where the employment status is more borderline or challenging.

HMRC said that it would enhance the CEST tool before the IR35 reforms were rolled out to the private sector, and this update looks to have confirmed that commitment. The UK’s tax body reportedly consulted stakeholders to help guide the update, and rigorously tested against case law and settled cases.