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Freelancers’ hope of reprieve from IR35 dashed as tax changes to go ahead after ‘recklessly inadequate’ review

3 min read

Controversial tax changes for freelance workers are set to go ahead despite a wave of criticism.

Hopes from contractors they would get a reprieve from the changes to regulations, known as IR35, were dashed after a statement from the Treasury on Thursday.

It said the reforms, which ensure two people sitting side by side doing the same work for the same employer are taxed in the same way, will come into effect on 6 April.

The Government wants to stop employees working in a permanent position at a firm being “disguised” from HMRC by being paid through their own limited company as a freelancer, and therefore paying less income tax and National Insurance.

Current IR35 rules mean individuals assess their own tax status, but the responsibility will now shift to businesses, which campaigners say will have a damaging effect on legitimate contractors.

Many large firms say they will no longer use freelancers to avoid the risk of falling foul of the new rules, which the Government expects to generate an extra £3.1billion in tax over the next four years.

Jesse Norman, Financial Secretary to the Treasury, said: “It is only right that the off-payroll rules are applied consistently across all sectors.

“Two people sitting side by side doing the same work for the same employer should be taxed in the same way.

“Following a review the government is announcing a package of measures to help individuals and businesses implement these changes smoothly.”

Those changes to the initial plans mean HMRC will not penalise those affected in the first year of its implementation “except in cases of deliberate non-compliance”.

But the measures were denounced by the Association of Independent Professionals (IPSE), who said the Government plans are “essentially unchanged” and will be “catastrophic” for the contractor sector.

Andy Chamberlain from the group said: “From the start, this review has been recklessly inadequate.

“Not only was it not independently chaired; it was also rushed out of the door in less than two months.

“The tweaks proposed by the review go nowhere near far enough.

“If anything, this tinkering shows the government knows the changes to IR35 will be immensely disruptive to business and contractors, but plans to forge ahead regardless.”

And James Poyser, CEO of inniAccounts, an online accountancy form for contractors, said: “The review will do absolutely nothing to turn the tide of actions being taken by contractors.

“The review plays down flight risk. It's nonsense, we are very clearly seeing it happen."

The chairman of the Federation of Small Businesses, Mike Cherry, said: “This review clearly points to low levels of awareness about April’s IR35 changes, ongoing concerns about the reliability of HMRC’s tool for checking tax status, and narrow timeframes to prepare for these new rules – made narrower by the general election.  

 “With all that considered, it’s disappointing that the Government has decided to press on with these changes, particularly against a backdrop of an unprecedented 18-month slump in small business confidence.”

But he added: “That being said, we appreciate the promise of a one-year soft-landing phase.

“That 12 months will almost certainly have to be extended given we’re already hearing from contractors in the private sector who are suffering from the prospect of this move.”

Brian Palmer from the Association of Accounting Technicians was more positive, and welcomed the “soft landing period until April 2021”.

He added: “All in all, the package announced today might not be everything that everyone wanted but it’s certainly a step in the right direction.”

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