IR35 changes ‘unlikely’ to be included in Budget – Rishi Sunak to delay announcement

PMQs: Johnson slams Blackford on SNP’s budget spending

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IR35 is a set of tax laws which form part of the Finance Act. The first piece of legislation came into force in April 2000, and is properly known as the Intermediaries Legislation. In April 2017, the Government introduced the ‘Off Pay-roll reforms’, which is a separate piece of new tax law that applies to the public sector, but confusingly, is also called IR35. While both tax laws contain the common theme of ‘deemed employment’, the newer rules introduce a different set of tax treatment, meaning that firms can now assess the contractors’ status, but more importantly, pay employment taxes on top of the fees paid to the contractor.

Despite introducing IR35 nearly 20 years ago with the aim of tackling ‘disguised employment’, the Government thinks contractors still abuse the system.

The Treasury thinks the rule-breaking goes to the extent that just one in 10 contractors who ought to be operating inside IR35 rules actually are.

As a leading authority on IR35, Qudos contractors disagrees strongly with the Government on this figure.

Since 2017, the public sector client has been responsible for administering IR35 rules.

As a part of this reform, the liability for paying the tax also transferred from the contractor to the fee-payer, which is usually the recruitment agency in the supply chain.

Starting from April 6, 2021, these rules which were postponed due to the pandemic, are expected to be rolled out within the private sector.

Medium and large businesses and enterprises will be placed in charge of setting the IR35 of a contractor, rather than the worker themselves.

But one expert thinks the Chancellor of the Exchequer, Rishi Sunak, will hold off on discussing IR35 reforms in Wednesday’s Budget.

Matt Fryer, Head of Legal Services at Broookson Legal, which is the only Solicitors Regulation Authority accredited specialist IR35 law firm, told “It is unlikely that IR35 will be mentioned in Chancellor Sunak’s forthcoming Budget.

“Following a year’s delay due to the COVID-19 pandemic and extensive scrutiny in Parliament, the legislation was finalised over the summer and Government is now keen to press on with these changes to the off-payroll working rules and avoid further debate.”

Mr Fryer predicts the Chancellor will likely wait until March 23, dubbed ’tax day’, for the Government to unveil plans for longer term tax policy changes.

In terms of the Budget, the IR35 expert says he thinks it will focus on stimulating short to medium term growth in the economy, “but this will need to be balanced with a package of future tax raising measures (such as a potential increase in the rate of corporation tax)”.

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Mr Fryer said: “Prior to the April 6 IR35 deadline, businesses have already been provided with a great deal of information to help them manage their new responsibilities to determine and enforce the tax status of contracts.

“While offering support to ensure compliance, HMRC will now be actively seeking to recoup the £1.2billion of tax revenue estimated to be generated in the first year.

“We would strongly advise businesses not to take short-term compliance risks which could result in tax liability being recovered later in the year. There is still time to get this right.”

Andy Vessey, head of Tax at Kingsbridge Contractor Insurance and a leading expert in IR35 who worked for both HMRC and Qdos, reiterated Mr Fryer’s sentiment.

Mr Vessey said he isn’t expecting any major IR35 updates in the March 3 Budget, but rather a few weeks later, likely on April 6, and said the Treasury will definitely press on with the changes due to the money it can bring in from them.

Mr Vessey said: “The Treasury expects the reforms to raise £3billion by 2024, and delaying them this year has already cost the Government £1billion in lost revenue.

“The Government therefore needs every penny it can lay its hands on to repair an already ruined economy. Coupled with Boris Johnson’s roadmap announcement this week, the case for the reforms going ahead onA April 6 becomes more compelling.

“In conclusion, I am not expecting any major announcement on IR35 in next week’s Budget.”

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