AAT’s suggestion of a soft-landing landing period for IR35 is one of three changes announced to the off-payroll working rules.
The Government published its review findings this week. As expected, it confirmed the rules will come into force in the private sector from 1 April.
However, pressure from contractors, businesses and recruiters and professional bodies did lead Government to make three key changes:
- Customers will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months unless there is evidence of deliberate non-compliance.
- HMRC will amend the legislation so wholly overseas organisations with no UK presence do not need to consider the off-payroll working rules.
- New legislation will be passed to make it a legal requirement for clients to provide information about their size to an agency or worker.
AAT guide to IR35
AAT has produced a technical guide to IR35 determinations, payroll and tax, which can be accessed in AAT Knowledge Hub.
“It is widely accepted that the rules introduced in 2000 have not been fully effective,” the Treasury admitted.
“The Government has listened to the concerns raised by stakeholders, and is changing its approach where appropriate to better support affected businesses and individuals.”
However, with the prospect of collecting extra taxes, it was not persuaded to postpone the extension of IR35. Instead it agreed to “a light touch approach to penalties” for the first twelve months.
AAT has welcomed the changes, not least because the soft landing was a proposal championed by the organisation.
Brian Palmer, AAT Tax Policy Adviser, said:
“With the government having already previously postponed the extension of off-payroll working to the public sector and with just weeks remaining until implementation, AAT believed that further delay had little realistic chance of being delivered. We’re therefore pleased that the government has instead confirmed that there will be a soft landing period until April 2021.
“If employers or contractors have taken reasonable steps to comply but get something wrong, HMRC will not be pursuing them with fines and penalties. This should provide some much needed reassurance.”
There has been many high-profile IR35 fines in the private sector causing much controversy, as this AA Knowledge Hub review of tribunals reveals.
The Treasury review promises that HMRC will commission external research six months after the changes looking at their impact and how status determinations are being made.
Regarding the changes relating to overseas organisations and clarity on the size of employers, Brian Palmer added:
“The issue with overseas organisations had the potential to create significant complexity and bureaucracy so today’s clarification that they will be exempt is welcome.”
With the extension of the scheme confirmed for 1 April, AAT members are advised to get up to speed with IR35 requirements.
A recent survey of 1400 contracting companies found that they are most likely to turn to accountants to help them through the changes.
To help prepare AAT has provided a Knowledge Hub guide to tax and IR35 determinations.
David Nunn is Content Manager at AAT.