No penalties for first year of IR35 reform

Businesses will not have to pay penalties for inaccuracies in the first year of reforms to off-payroll working rules after they are implemented from this April, except in cases of deliberate non-compliance.

New initiatives will support businesses and individuals as the changes come in, helping to address concerns and ensure the smooth implementation of off-payroll working rules.

Financial Secretary to the Treasury Jesse Norman 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.”

Detailed guidance, webinars and guides will also be available to help contractors understand the rules.

Annie Gascoyne, CBI Director of Economic Policy, said: “After months of consultation on IR35, businesses will welcome the fact there is now finally some clarity on the situation.

“HMRC have clearly listened to business, and recognise how vital it is to educate and communicate with those who might be affected, however, for many this comes very late in the day.

“The six month review will be an important marker to test whether the policy is having the desired effect. It’s important that the review includes a full and comprehensive impact assessment, properly assessing the admin burden for business and the impact on labour market flexibility.

“This policy cannot be the end of the road. There have been too many sticking plasters over the years and a holistic review of the employment tax system needs to be undertaken at the earliest point practical.”

The rules only apply to individuals who are working like employees under the current employment status tests, and do not apply to the self-employed.

The reforms, announced in the 2018 Budget, are designed to tackle non-compliance with the off-payroll working rules by making medium and large organisations in the private and third sectors responsible for determining the tax status of contractors and ensuring that the right employment taxes are paid. The reforms have previously been implemented in the public sector.