IR35 is nearly upon the private sector – let’s now hope for a soft landing

IR35 is nearly upon the private sector – let’s now hope for a soft landing

AAT's Brian Palmer suggests a 12 month ‘soft landing’ period for the IR35 off-payroll working rules as the government shows no intention of postponing the legislation

IR35 is nearly upon the private sector – let’s now hope for a soft landing

By Brian Palmer, tax policy expert, AAT

While we await the outcome of the government’s review into IR35 off-payroll working rules, it’s worth stressing that there is currently no intention to postpone the April 2020 roll-out of the 2017 public sector legislation to the private sector.

As the Financial Secretary to the Treasury, Jesse Norman, confirmed when announcing the review, the purpose is “to make sure that the implementation of these changes in April is as smooth as possible.”

With this in mind, continued calls for a delay appear to be fruitless. Last month the UK’s largest recruitment agencies including Reed, Adecco, Harvey Nash, Hays and Manpower, together with the Recruitment & Employment Federation, wrote to the Chancellor calling for implementation to be delayed until 2021. The Federation of Small Businesses and contractors’ representatives IPSE (Association of Independent Professionals and the Self-Employed) have called for similar delays, as have other professional tax and accountancy bodies, including the Chartered Institute of Taxation, Association of Chartered Certified Accountants and Institute of Chartered Accountants in England and Wales.

AAT is now instead calling for a 12 month ‘soft landing’ period until April 2021. A delay to implementation would previously have been our preference, but having already postponed IR35 once and with only weeks to go, it’s highly unlikely that the Government will grant any further delay.

As a result, the most realistic, sensible and helpful way forward is for the Government to confirm that no penalties or fines will be imposed on anyone who can demonstrate they have taken all reasonable steps to comply, until April 2021.

This type of flexible safety net is essential in providing some certainty and reassurance to employers and contractors alike.

Will the review change anything?

With the closure of the ongoing review, while we hope that the government will help businesses with regards to penalties, they are also attempting to address concerns that affected businesses and individuals may have over how the new rules are to be implemented.

The whole point of the review was to establish what, if any, additional steps might be required to ensure a smooth and successful implementation of the reforms. Equally, it was designed to assess whether any extra support might be required to ensure that the self-employed, who are not in scope of the new rules, are not in any way impacted, and how it can better support the self-employed in general.

This may include improving access to finance and credit, making the tax system easier to navigate, and examining how better broadband can boost homeworking.

Along with the review, HMRC is continuing its comprehensive programme of education and support activities, proactively helping customers to prepare for IR35. This is including one-to-one engagement, webinars and workshops, alongside targeted communications and customer support – in the hope that private companies will be in the best position to decide whether the new rules apply to an engagement with individuals working through an intermediary.

Government forced to back-track on contractor loan charge

While IR35 will, we expect, still affect those public sector clients and private sector companies meeting two of the three conditions (annual turnover of more than £10.2m; balance sheet total of more than £5.1m; 50 employees) as of April 2020, some 11,000 taxpayers could be removed from the loan charge tax clawback following the publication of Sir Amyas Morse’s Independent Loan Charge Review report.

The government has announced a raft of easements on the basis of the report from Sir Amyas, a former head of the National Audit Office, who acknowledged that the loan schemes were a form of tax avoidance, but made a series of recommendations about the design and implementation of the charge. There is a knock-on impact on those who come within its scope. All but one of his recommendations have been accepted, and the loan charge now only applies to loans taken out on or after 9 December 2010 (the point that the review considered that the promise of legislation removed any doubt that the tax was due). Previously, the Treasury insisted it was applied all the way back to 1999.

The charge has also been waived for those who had previously disclosed to HMRC their involvement in a scheme in any tax year between 9 December 2010 and 5 April 2016, where the department had subsequently failed to act upon the received information. To be entitled to this treatment, taxpayers need to have made full disclosure of their involvement in a scheme(s) in their relevant tax return(s) during this period.

In addition, relief has now been promised for those remaining within the scope of the charge, as they will be able to defer filing their returns and paying their loan charge liability until September 2020. They can also split the loan balance over three years, in order to ease the potential impact of financial hardship.

No repentance shown over loan charge

While the report has somewhat forced the government into a U-turn on some of the more onerous elements of the loan charge, it refused to accept there was an issue with the charge in general. Ministers have promised ‘new action’ against promoters who marketed the schemes prior to 2010, announcing that details of the crackdown will be part of the upcoming Budget. A new HMRC team is going to be set up, to collect tax from those who used tax avoidance schemes that the charge was designed to tackle, from prior to 2010.

Once legislation has been passed, HMRC will repay parts of some settlements reached with taxpayers where they had voluntarily paid amounts due for earlier years.

Following the report, there’s new guidance published by HMRC aimed at helping those who remain affected, to understand what they need to do next. Users of schemes can defer sending their return, and paying tax for 2018-19, until late September 2020.

Additional actions

In addition, following the report’s publication, HMRC has restated it will ‘not seek bankruptcy proceedings for individuals who have engaged with HMRC, completed an affordability assessment, and are solely unable to pay the loan charge.’

The solitary rejection from the report was a proposal made by Sir Amyas to introduce a 10-year write-off of tax due on the loan charge for individuals whose time to pay arrangement exceeded 10 years.

This was on the basis that such a proposal would grant those who have avoided tax through use of disguised remuneration tax avoidance schemes more favourable terms then taxpayers with other debts, including tax credit claimants.

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