The Pros And Cons Of Changes To Off-Payroll Worker Rules
New IR35 rules were initially introduced into the public sector in 2017. However, in 2020, private businesses were also included within the changes. These were then implemented in 2021, following a year delay due to coronavirus. This meant every medium and large business was made responsible for setting the tax status of their contractors. HMRC can examine the contractor’s tax status at any time. If deemed incorrect, the company was then responsible for any fees and penalties.
Some companies were instantly unwilling to accept the risk and put blanket bans on the use of contractors. This was instantly met with concerns especially from the construction sector, who are heavily reliant on this type of worker. HMRC’s tools for assessing tax compliance were also criticised for being confusing and hard to use accurately.
However, as part of new chancellor Kwasi Kwarteng’s first major economic intervention, he has decided to repeal the controversial reform to off-payroll taxation. As part of a focus towards boosting growth by slashing taxes and regulation. “As promised by the prime minister, we will repeal the 2017 and 2021 reforms. We will continue to keep compliance closely under review,” Kwarteng told MPs. The treasury document states that “workers providing their services via an intermediary will once again be responsible for determining their employment status. As well as paying the appropriate amount of tax and national insurance contributions. This will free up time and money for businesses that engage contractors, that could be put towards other priorities.” Adding that the new reforms will also minimise the risk for self-employed workers who are impacted by the underlying off-payroll rules.
What The IR35 Changes Mean For Businesses
Reforms to off payroll working have added unnecessary complexity and cost for many businesses. With many saying that the new reforms were flawed from the start. Many believe that the new version was introduced to simply prevent economic growth.
From this various leading experts consider the repeal as a huge victory for businesses. Having removed the unnecessary burdens and complex riddle when hiring a worker. Which should help to massively simplify the tax process for businesses and offer greater freedom to contractors.
Whilst others, have commented on the staggering amount of time and money that has been spent on compliance with the rules since 2017. “Implementation of these new rules has cost organisations millions of pounds, so it is disappointing that the warnings were not heeded before pressing ahead”.
What Will Happen In April?
Chartered Institute of Taxation, (CIOT) President Susan Ball comments “While reversing the 2017 and 2021 Off-Payroll Working rules will significantly reduce compliance burdens for big business it does not solve the problem of IR35. Instead, it places the burden of compliance back on small independent contractors and freelancers.”
Although, many suppliers of contract workers, view this a positive opportunity. They will be able to revert to more tax-efficient ways of supplying workers via personal service company (PSC) arrangements. However, with the shift in responsibilities industry leaders believe this will lead to widespread non-compliance and costly compliance tasks for HMRC. Further leading to many contractors having to defend their status or face significant penalties.
Moore Kingston Smith head of tax Tim Stovold believes “Businesses will remain exposed to tax risks by virtue of other tax rules and the corporate criminal tax offences. If they pay contractors off-payroll when they know that the contractors should be taxed as employees.”
However, Kwarteng has stated that the Government will keep compliance under review. Therefore, if rules are not followed and compliance isn’t met to HMRC standard, we might see further changes.
Back Office Support Are Here For You
As a dedicated, solution provider to recruitment agencies that supply temps and/or contractors, we’re here for you. The change in rules will make things less complicated for many recruitment agencies. However, legislative changes can be challenging. Here at Back Office Support, we have a team of experts that will always be there to help whatever the challenge.