People will not have to pay penalties for IR35 errors in the first year of the tax changes, as the government confirmed a “light touch” approach today.
The government has published its review into the tax changes after announcing it would look into IR35 following concerns from business.
HMRC said: “Customers will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance”.
The government said it recognises that the rules have not been “fully effective”, echoing business concerns. Businesses had lobbied HMRC to take a softer approach on compliance in the first year of reform.
In its review, the government said it had listened to the concerns and had changed its approach “where appropriate to better support affected businesses and individuals.”
Despite the tweaks the government said it remains committed to IR35 and “believes it is right to address the fundamental unfairness of the non-compliance with the existing rules”.
However some trade bodies think the review has not gone far enough.
Despite claims that it has listened to trade bodies and business, the government’s review has been blasted as “recklessly inadequate” by the Association of Independent Professionals and the Self-Employed (IPE). IT has said that its plans to push ahead with the new off-payroll rules “essentially unchanged” will be “catastrophic” for the contractor sector.
IPSE’s deputy director of policy Andy Chamberlain said: “From the start, this review has been recklessly inadequate. Not only was it not independently chaired it was also rushed out of the door in less than two months.”
“The tweaks proposed by the review go nowhere near far enough. If anything, this tinkering shows the government knows the changes to IR35 will be immensely disruptive to business and contractors, but plans to forge ahead regardless.”
The Federation of Small Businesses chairman Mike Cherry said: “It’s disappointing that the Government has decided to press on with these changes, particularly against a backdrop of an unprecedented 18-month slump in small business confidence.”
The government also said it is launching an education programme for individuals and businesses.
HMRC said it will commission external research into the impacts of the reform six months after its implementation.
Contractor insurance company Qdos has called the review “disappointing, albeit unsurprising”. Chief executive Seb Maley said the government “has clearly ignored calls for a genuine review into IR35 reform”.