Chancellor Rishi Sunak has bowed to industry pressure over IR35 tax changes by promising enforcement will not be “heavy-handed”.
The IR35 measures were implemented in order to prevent tax avoidance by “disguised employees”, contractors with permanent positions at companies without paying the same tax or national insurance contribution as standard employees.
Under the latest reforms private sector employers will now be responsible for assessing whether or not contractors need to pay income tax or NI contributions.
Speaking at an event in Birmingham over the weekend, Sunak sought to reassure business that the reforms would not be heavy-handed.
“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,” he said.
He added that the review into the implementation of the policy “will have some tweaks and improvements to make sure that the transition is as seamless as possible.”
Employment groups have been urging the chancellor to suspend the IR35 new tax regulations for self-employed workers or risk damaging the economy.
Industry bodies have predicted that the changes, which are due to come into effect in April, will lead to a third of self-employed contractors stopping freelancing over non-compliance fears.
Earlier this year the government said it was launching a review of IR35 after former chancellor Sajid Javid pledged to examine the reforms ahead of the general election.
Sunak, who became chancellor earlier this month after Javid’s shock resignation, is expected to publish the results of the review before the Budget on March 11.
Sunak did defend the government’s decision to implement the changes.
“[IR35 is] going to mean some changes because some people unfortunately were operating in a way that they weren’t paying the tax they probably should have been, because essentially they were employees but they were being taxed as if they self-employed.”
“And there is quite a difference there. And it’s not fair to all the people who are employed that someone else could be doing the same job and paying less tax. Because ultimately that tax pays for the NHS and social care and everything else.”
A Treasury spokesperson said: “We recognise that this is a significant change for businesses, and as the Chancellor has said, HMRC wants to take a supportive approach to help businesses to apply the rules correctly going forwards.”