IR35 plans are shelved – what now for contractors?

The Government’s plan for new Intermediaries Legislation – more commonly known as IR35 – has been a hugely controversial issue for everyone working as a contractor, self-employed person, temporary worker or freelancer. The entire industry, Danbro included, has campaigned furiously about plans to boil the regulations down to one simple test and a lengthy consultation has received thousands of responses.

We were expecting clarity on the issue in last year’s Autumn Statement but nothing was mentioned and that fuelled further fears that hasty legislation would be pushed through this April.

However, HMRC have now provided much needed answers on the issue and the good news is that they appear to have listened to industry concerns. Whilst a final decision has not been made, the plans have been shelved for at least a year while Ministers consider the best way forward.

Why the need for IR35 reform?

What is clear is that HMRC believe that IR35 is not working as intended, believing more workers should be caught by IR35 and are looking for a change to make compliance with the legislation harder to avoid.

Why the IR35 reforms are a controversial issue?

By boiling IR35 to one simple vague SDC test, the industry feared a large number of independent professionals would be unfairly affected. Similarly, contractors were expected to assess themselves which could leave many unwittingly vulnerable to future penalties.

In reality, HMRC doesn’t have the resources to police the vast army of self-employed workers in the UK and this blanket approach had the potential to have a huge negative impact on the sector – which is enormously important to the future prosperity and growth of UK PLC.

The plans also lack clarity, making it difficult to accurately assess if you fall foul of the legislation and if you are under supervision, direction or control.

What is happening with IR35 now?

In a forum with industry leaders last month, HMRC confirmed it has listened to concerns and has put the legislative changes on hold for another year at least.

HMRC have also confirmed they will be reconsidering the Employment Status Indicator to make it more relevant to contractors and will aim to make it much easier to assess whether a worker should be classed as an employee.

An employment status test will remain in future legislation and it will be down to the individual contractor to decide if they should be treated as an employee, but there should be further clarity on how each independent professional will be affected.

The travel and subsistence changes outlined in the Autumn Statement and due to come in to force in April will still go ahead but won’t affect PSCs unless they are in the current IR35 framework and must apply a ‘deemed salary’ calculation to their contract income. For more details on IR35, you can read our FAQs here.

What lies ahead for IR35?

The good news is that we have been heard. Despite fears that legislation may have just been pushed through; the Government has listened to us and has acted on the vocal reaction to the proposals.

I’m sure there will be further developments in this long-running saga, but HMRC should be applauded for taking the time to analyse responses and then taking a sensible decision to investigate the issue further.

We won’t see any further changes this year and we’re looking forward to working with the Government to find a solution that ensures the proper amount of tax is paid whilst the right environment is created for the self-employed sector to flourish.

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