Dave Chaplin – “Mr IR35” recently spoke to Julia Kermode from iWork about the governments shock announcement to repeal the off-payroll working legislation
You can listen to the entire episode here https://iwork.co.uk/podcast/did-the-chancellor-just-announce-repealing-ir35-not-quite/ but we’ve summarised the key points from the conversation below;
There is no change simply due to the chancellor’s announcement. It shows significant intent, but we need a Finance Bill, leading to a Finance Act. The Finance Bill would be likely in November 2022, then take around 3 months to go through committee stages, and readings etc… It will probably be around February 2023 to be certain of the changes. The advice is to carry on as everything is for now.
If it happens as we think, IR35 is not dead. It will be a return to the intermediaries legislation – IR35 Chapter 8 of the Income Tax (Earnings and Pensions) Act 2003. The removal of the Chapter 10 reforms (public sector from 2017 and medium & large businesses in the private sector from 2021) are the parts that have been announced likely to be removed. HMRC will not let the Chapter 8 IR35 regulations sit there unenforced.
Contractors will be responsible for assessing their tax status as before. If caught under IR35, the contractor rather than the hirer will have to pay the challenged amounts that would have been due under PAYE, including Employers NI. There is no way that hiring firms will allow mass tax avoidance. The Criminal Finances Act makes this a Corporate Criminal Offence.
If a contractor is currently working “Inside IR35”, with an intention to switch to “Outside IR35” in April, it’s highly unlikely that a hirer would allow this or turn a blind eye to tax avoidance. By doing so, they could be caught by The Criminal Finances Act, allowing transfer of debt right through the supply chain. Workers being paid by Agency PAYE or PAYE Umbrella are not actually working “Inside IR35”, they are on-payroll workers. They are only working “Inside IR35” if they are being paid via a PSC / Ltd Company and having taxes deducted as a deemed employee. If a contractor switches from “Inside IR35” or on-payroll to “Outside IR35” at the same client, they will likely be a sitting duck for HMRC. Dave Chaplin believes that there is a high chance of being investigated as HMRC have lots of data / intelligence about how to target contractors. They will be looking to enforce the Chapter 8 legislation.
He also questions whether hiring firms will want a reputation for hiring people avoiding tax? Status assessments will still be done, although it will be the contractors holding liability. End clients have got better at setting up genuine projects, using statements of work and outsourcing work in general. This has resulted in more genuine outside IR35 contracts that work. This will also continue to grow as they develop further. He mentions that it would be naïve for hiring firms to just move all of their contractors to PSC / Ltd Company models overnight, but also naïve for naive for contractors to think IR35 is dead. HMRC haven’t helped levels of understanding by calling the new Chapter 10 regulations IR35. They’re off-payroll working rules and should be referred to as such. These are the rules that are potentially being repealed.
Potential hurdles ahead could be large firms asking government for a delay to have more time to prepare, or rebel MP’s trying to block the change. If a large firm previously took a policy decision on insisting workers were on-payroll, it will take time for them to transition to the new world.
The summary of advice by Dave Chaplin is;
- for hirers, agencies and contractors to carry on as they are for now
- assume nothing will change until a Finance Bill is released
- educate yourself on IR35 in the meantime
We will be keeping a close eye on developments and will advise our agency partners of new suitable offerings in due course.
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