The government has launched a review into changes to IR35 off-payroll working rules just three months before their planned introduction into the private sector.
The rules, set to be implemented on 6 April, will shift the responsibility for determining the tax status of a contractor from the worker to the organisation using their services.
Launched by the Treasury today, the review will run until mid-February and will consider whether any further steps are needed to ensure they are implemented smoothly.
Financial secretary to the Treasury Jesse Norman said: “We recognise that concerns have been raised about the forthcoming reforms to the off-payroll working rules.
“The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”
A series of roundtable discussions with contractor groups and medium and large-sized businesses will be held to consider whether the government needs to do more to tackle organisations’ concerns.
The government will also carry out further internal analysis, including an evaluation of the revamped Check Employment Status for Tax tool, which was met with much criticism when it was launched in November.
Public sector bodies’ experience of implementing the IR35 changes in 2017 will also be looked at.
However, the review was criticised for being “disappointingly hasty and inadequate” by Andy Chamberlain, deputy director of Policy at the Association of Independent Professionals and the Self-Employed (IPSE).
“Not only has the government not said it will pause the changes, it has also allocated far too little time for a full review and said nothing about selecting an independent chair. Such a limited review would leave the freelance sector floundering,” he said.
“Right now, across the sector, contractors and freelancers are panicking at the prospect of these disastrous changes.
“Major businesses, including most of the large banks, have already announced they will no longer engage contractors out of fear they will fall foul of the notoriously complex legislation. Even before the new rules take effect, they are precipitating a crisis among the self-employed.
“The government must urgently reconsider. It must give more time for a full review that includes an impact assessment of the changes in the public sector and the likely effects on the private sector. And for the integrity of the review, it must make sure it is independently chaired.”
The announcement fell short for the Recruitment and Employment Confederation, which had urged the government to push back the changes to 2021 to ensure organisations were sufficiently aware of the changes.
It said a delay would allow the government to regulate umbrella companies and reduce the risk of non-compliant umbrella firms “prospering”.
Matt Fryer, group compliance director at Brookson Legal, said organisations should take today’s announcement as confirmation that the legislation will be coming into effect this April, as planned.
“The wording of the statement clearly indicates that there will be no last-minute policy U-turn. Anyone who has not taken the necessary action to prepare yet, should do so now,” he said.
“The best that can be hoped of the review is that it will address the concerning trend of large users of contract labour bypassing their obligations under the new rules by enforcing blanket bans on the use of contractors in their supply chains. It would also be helpful to have further clarity on responsibility for IR35 compliance within the supply chain as this will be a key issue for businesses working with recruitment agencies moving forwards.
“Finally, we would expect a “soft landing” post-April, with HMRC using the first 12 months to continue to educate, rather than seek to punish businesses who have not been able to get their house in order.”
Nick Woodward, CEO of freelancer timesheet software provider ETZ Payments, said: “The review is good news for those who are concerned by the new IR35 rules but it will present uncertainty for workers, recruitment agencies and companies who have already adapted to the changes.
“Considering that MPs in the government were openly calling for this review, the fact it has happened so quickly in the new year shows the HMRC’s commitment to this and hopefully, the review and its recommendations will give all players enough time to adjust ahead of April.
The government need to ensure that people have all the relevant, correct information at their disposal to ensure they can be IR35 compliant before we reach April, and hopefully, this review will provide swift clarity to all.“