Rishi Sunak, the new Chancellor of the Exchequer, has confirmed that HMRC will not be “heavy handed” in implementing the new IR35 tax rules that are set to be rolled out in April.
The IR35 reform is aimed at preventing tax avoidance by “disguised employees” – freelancers and contractors who have regular positions at businesses and do not pay the same tax and National Insurance contributions as standard employees.
From April 2020, all private sector employers will need to assess whether the freelancers and contractors they use are “inside” or “outside” the scope of IR35 – therefore determining whether they need to pay income tax and NI contributions.
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The proposed changes have led to criticism from many contractors, employer groups and campaigners, who have urged the government to suspend the new IR35 tax regulations for self-employed workers or risk damaging the economy.
During a visit to Birmingham at the weekend, Mr Sunak appeared to address their concerns, vowing to introduce “tweaks and improvements” to the new framework to make the transition as “seamless as possible”. The Chancellor went on to say:
“I’ve spent time with HMRC to ensure they are not going to be at all heavy-handed for the first year, to give people time to adjust as well, which I think is an appropriate and fair thing to do.”
However, far from being reassured, campaigners have argued that the Chancellor’s comments do nothing to allay the fears of the UK’s contractors and freelancers – with recent reports suggesting as much as a third of them are considering stopping freelancing over fears of non-compliance with IR35.
A recent study by IPSE (the Association of Independent Professionals and the Self-Employed) also found that nearly all freelancers (97%) said that they are concerned about the IR35 reform.
Their research also found that 92% of self-employed workers believe that working “inside IR35” and paying employee National Insurance Contributions without employee rights is unfair.
Tax experts have predicted that the implementation of IR35 in the private sector could reduce the net income of freelancers and contractors by up to 25% – costing the typical contractor thousands of pounds in additional NI contributions and income tax.
Earlier this year the government said it had launched a review into IR35 after the then Chancellor Sajid Javid pledged to examine the reforms ahead of the general election.
Sunak, who became chancellor earlier this month after Javid’s surprise resignation, is expected to publish the results of the review prior to his first Budget on March 11.
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