Given the current uncertainty around Brexit, it was expected that today’s Spring Statement would be lacking in any new announcements impacting the taxation of contractors and the broader labour market.
It is unsurprising that the Chancellor avoided any mention of IR35 in today’s Spring Statement given the consultation announcement last week. However, given that this is such an important tax change for the private sector, today would have been an opportunity to remind businesses of this significant change and encourage them to start preparing now for its 2020 implementation. In talking to businesses up and down the country, many are still in the dark about the IR35 changes and its impact; a lack of direct reference to IR35 in the Spring Statement, won’t help matters.
This tax change will affect every medium and large-sized business in the UK that engages with contractors. It can’t be avoided.
When the tax reform was first introduced into the public sector there was a great deal of last-minute panic resulting in costly mistakes and an exodus of contractor talent. If private sector businesses are to avoid this talent drain, they need to start talking to and reassuring their contractor workforces, undertake fair employment status assessments and put the right plans and procedures in place. In today’s economic climate with ongoing uncertainty and change, putting your house in order early will mean the difference between IR35 just being a small bump in the road that you can effectively manage, or one that could have mountainous long-term consequences.
Other points to note from today’s Spring Statement include:
HMRC and HM Treasury published a joint policy paper detailing their approach to “Tackling tax avoidance, evasion and other forms of non-compliance”. The paper outlines HMRC’s strategy and approach to compliance and its “achievements” in addressing non-compliance. The paper lists circa 150 individual measures announced since April 2000 to tackle avoidance, evasion and non-compliance (notably, the IR35 legislation and the off-payroll rules in the public sector aren’t referenced). It is interesting that there is no measure of effectiveness or measure of unintended consequences considered in this document. This is our major concern with the forthcoming IR35 changes. It is clear that HMRC will continue to tackle non-compliance in an attempt to close the tax gap and whilst we welcome this in principle we urge government to ensure that their approach is proportionate and fair to all taxpayers.
The ministerial statement contains a reminder that the Making Tax Digital rules come into force on 1 April 2019. Given that HMRC still haven’t finalised many of the systems, processes and guidance that taxpayers require to comply it is good to read the reminder that HMRC will take a light touch approach to penalties in the first year of implementation.
A summary of the previously announced rates and allowance for the tax year commencing 6 April 2019 can be found here.