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UK Treasury Review and outcomes of upcoming changes to IR35 published

06 March 2020

Last week the Treasury published its response to its recent review of the IR35 reforms due to come into force next month.

Despite the controversial reform of the off-payroll working rules (IR35) it is clear that the Government intends to press ahead with the reform which will apply to large and medium sized organisations in the private sector from 6 April 2020.

The Government states that it has listened to stakeholders as part of the review process and will be making a number of changes to address those concerns.

The key points are:

  • HMRC will take a ‘light touch’ in relation to non-compliance in the first 12 months of the reforms and therefore businesses will not have to pay ‘penalties’ for inaccuracies relating to the new rules, unless there is evidence of deliberate non-compliance. However although penalties will not be imposed the tax and NICs would still be payable.
  • The Government will introduce legislation to impose an obligation on client businesses to respond to a request for information about their size from intermediaries/workers. This is so that intermediaries and/or workers can know when the client organisation is ‘small’, and therefore whether they can expect to receive a status determination statement from the client.
  • The Government will amend legislation to exclude wholly overseas organsiations with no UK presence from having to consider the off-payroll working rules. This means that the existing rules for engagements in the private sector will continue to apply where the client is wholly overseas and the individual’s intermediary will therefore continue to determine the status of the individual.
  • HMRC have confirmed that information resulting from the rule changes will not be used to open new investigations into personal service companies for tax years prior to 6 April 2020, unless there is a reason to suspect fraud or criminal behaviour.
  • HMRC has updated its Employment Status Manual guidance in line with the outcomes from the review to support businesses in preparing for the rule changes. Furthermore, in order to address high levels of misinformation in the market, and to raise awareness of the risk of using avoidance arrangements, HMRC has published a self-help guide aimed at contractors on how to spot anti-avoidance schemes.

For a more detailed look at the upcoming IR35 changes and how businesses and contractors can prepare for the changes, please see our updated IR35 note here.

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