IR35 - It’s confirmed, no change of heart

IR35 - It’s confirmed, no change of heart

When it comes to IR35 changes, Contractors and Agencies hoping for a change of heart from the Government will be disappointed with its review.

28th February 2020

Attempts by the UK chancellor of the exchequer, Rishi Sinak, last week to soften the blow of IR35 somewhat backfired. Far from calming the waters, lobbyists campaigning against IR35 said his comments showed the Treasury had no intention of making meaningful changes to the IR35 policy, despite concerns voiced by the businesses and contractors.

And the Government’s review published yesterday (‘Review of changes to the off-payroll working rules: report and conclusions') confirm their fears.

What does the review say?

In a nutshell:

  • The reform is still going ahead with no delays
  • HMRC has said it's a 'soft' launch with no action to be taken against 'genuine' IR35, i.e. no penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance.
  • The rules will only apply to services carried out from 6th April 2020 onwards.

This chimes with the chancellor’s comments last week when he said: "I've spent time with HMRC to ensure they are not going to be at all heavy-handed for the first year to give people time to adjust as well which I think is an appropriate and fair thing to do".

A Treasury statement released after the chancellor's remarks said: “We recognise that this is a significant change for businesses, and as the Chancellor has said, HMRC wants to take a supportive approach to help businesses to apply the rules correctly going forwards.”

So it looks like Number 11 and the Treasury are focusing efforts on smooth implementation of IR35 and supporting businesses with the change, rather than changing the policy itself.

What does it mean?

Carry on preparing for the 6th April 2020 - agencies and end-user companies still need to take action and fast.

Why are campaigners upset?

Campaigners are concerned about the impact of IR35 on contractor’s income, but also believe IR35 will trigger a shortage of flexible workers, increase red tape and harm the economy. They argue IR35 will increase a business’ contractor costs by up to 14 per cent and reduce a worker’s net income by up to 25 per cent.

The former chancellor, Sajid Javid, pledged this review of IR35 as part of the election manifesto.

What should you do?

Whether you’re an Agency or a Contractor, we would advise you to continue to prepare for the introduction of IR35 on the 6th April. This includes finding and registering with an accredited, compliant IR35 umbrella company (just like us!) that delivers excellent value AND service and support for you over the long term.

If your client has deemed that you are ‘inside IR35’ and you’re unhappy with this, you should seek professional advice from your accountant or professional business advisor.

What is IR35? A recap

From April 2020 large and medium-sized private sector businesses in the UK will be responsible for assessing whether their contractors are genuine contractors, or so-called "disguised employees". HMRC believes 'disguised employees' using an intermediary or ‘PSC’ (like a contractor’s limited company), should be paying income tax and National Insurance (NI). If HMRC finds that a worker has been wrongly classified as ‘outside of IR35’ when they are in fact ‘inside IR35’, the company and their recruitment agency will be liable for unpaid tax.


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