HMRC changes IR35 off-payroll rules, just eight weeks shy of their feared start
A delay to the off-payroll working rules has been unveiled not even 24hours after their pause was predicted to ContractorUK, yet any further deferral is now being increasingly ruled out.
In fact, since Thursday’s revelation that both a Lords probe and a government review seemed to snooker HMRC from simply steaming ahead, a four-week grace period has been granted.
So instead of the new IR35 rules applying to payments made after April 6, irrespective of when PSCs earned them, the rules only bite services performed post-April 6, HMRC said.
Or, as advisory AAB puts it, IR35 reform only covers pay for services performed on/after April 6 -- not payment on/after April 6, even if the services were performed before that date.
'Fairly significant change'
The rephrasing should help as not everyone understands the change, and its impact is divisive -- “fairly significant”(tax firm Grunberg), “cold comfort” (IPSE), or just a 'minor concession.'
“A national broadsheet correctly reported that HMRC has relaxed the rules which I regard as a minor concession,” says former tax inspector Carolyn Walsh, boss at Andraste Accounting.
“But the newspaper incorrectly states that the rules will only apply to contracts starting after April 6, whereas actually what’s caught is payments for services provided after that date.”
Charlotte Edwards of Anderson Anderson & Brown said: “[So] any February or March workdays will be subjected to the old [IR35], regardless of if invoiced and paid after April 6.”
Qdos agrees: “The reform was due to apply to payments made by the fee-payer to the [PSC] on or after April 6, which would likely [cover] work completed by the [PSC] in March.”
The status review firm also says it disputes HMRC’s claim in a press release announcing the change that the government is ‘taking early action.’ The firm’s CEO Seb Maley explained:
“With less than two months to go until the reform arrives, this is a last-minute change that could easily confuse businesses further…[even if it is] a tweak to the rules that gives agencies and end-clients a few extra weeks to prepare.”
Another IR35 advisory Bauer & Cottrell confirmed: “HMRC have generously given another four weeks. So instead of PSCs leaving at the end of Feb; they can now stay until April 5.”
'Scale of unease'
The advisory’s alert on Thursday that two simultaneous probes into IR35 reform makes it hard for its April 6th launch not to be postponed has been drawn on favourably by APSCo.
“[A Lords] inquiry and HMRC’s own review into reforms are technically separate exercises, [but] the fact that they are running concurrently is indicative of the scale of unease around the incoming changes,” the staffing body says.
But the April 6th-specific detail in the .gov announcement on the rule change (stating that ‘businesses are being given more time to prepare’), is now making others think the opposite.
Also, the Revenue’s mistakenly published and then quickly withdrawn guidance to IR35 reform, in the shape of Employment Status Manuals, has quietly reappeared on HMRC’s website.
'Clear signal that a delay is now extremely unlikely'
“The one key takeaway [is] please treat this as a clear signal that a delay [to the April 6th commencement date] is [now] extremely unlikely,” says AAB’s Ms Edwards, the advisory’s senior manager in employment taxes.
She asked: “What would be the point of [HMRC] rushing the release of guidance if they were going to postpone? There are [now less than] 40 working days until the legislation goes live”.
At Grunberg, tax manager Nimesh Patel agrees.
Reflecting on the HMRC/HMT rule change, he said it was now “clear” that PSC-using projects starting on or after April 6th would be covered by the new IR35 regime.
'The rules are going to go ahead from April 6th'
Andraste Accounting’s Ms Walsh believes the same. “This HMRC concession does two things,” she says. “First, it clears up a potential confusion. Second, it confirms that the rules are going to go ahead from April 6.”
But Jeni Howard, head of compliance at Evolution Recruitment Solutions, sees it differently, and even suggests it could be a sign of practically helpful things to come from HMRC.
“[This change] will no doubt be welcomed by clients all over the country struggling to prepare in time [as it means] clients can switch to PAYE contracts just prior to that date, or issue an outside SDS, without worrying about when the payments for work will fall.
“And it will no doubt be welcomed by contractors who can have certainty that all work up to the 5th April can be paid under the current rules, removing the uncertainty created by the previous rules.”
“But” she added, “ I wonder whether the….[granting of the extra time has been] influenced by the fact that the review is unlikely to be completed by the deadline [which] business was using when the rules referred to payments, rather than services. Could this be a [sign] that there’s more to come from the [IR35] review?”
'HMRC are starting to realise'
In line with Howard’s reading, chartered accountants Saffery Champness said it used its participation in the IR35 Review to, among other things, ask HMT/HMRC to “change [the legislation] to ‘April 6th onwards for all services performed rather than payments.’”
Andy Chamberlain, deputy director of policy at IPSE, points out that HMRC’s reasoning for the change is indeed that, during the review, its officials have found engagers to be “concerned about ‘what payments the rules apply to and from when.’”
“HMRC are starting to realise just how difficult these rules will be for businesses to implement,” Mr Chamberlain says.
“Delaying the start date to when the work is actually performed, rather than paid for, is a sensible move. But it doesn’t address the fatal flaws in the legislation itself.”
'Use the extra time wisely'
Regardless of the motivation behind the off-payroll rule change, Mark Beal-Preston, CIO of Optionis, which owns contractor accountants like Nixon Williams and SJD Accountancy, is urging affected businesses to “use this extra time wisely to prepare for the reforms.”
However an unnamed source told yesterday’s Financial Times that chancellor Sajid Javid is going to hold off enacting “controversial” tax measures scheduled for next month’s Budget 2020, by consulting on them from this spring and introducing them after his statement in the autumn.