Tax experts have warned businesses that significant uncertainty continues to linger around IR35 rules, despite the reforms having been scrapped as part of Chancellor Kwasi Kwarteng’s September “Mini-Budget”.
The reforms, which had been widely criticised for their impact on the UK’s self-employed workforce and the administrative burden they placed on businesses hiring freelancers, will be scrapped from April 2023, in a move that was widely welcomed by self-employed workers and industry bodies such as the Association of Independent Professionals and the Self-Employed (IPSE) and the Federation of Small Businesses (FSB).
However, several figures have pointed out that there remains considerable uncertainty over the rules and how the repeal will be handled. Dave Hedges, a tax partner at accountancy firm Azets, said: “While the changes are welcome and have been lobbied for, we are advising clients throughout the engagement chain to tread carefully pending clarification.”
Hedges added: “The briefness of the initial announcement suggests there will now be significant drafting work being undertaken. We may not receive any detailed guidance until early in the new year.”
There have also been warnings that HMRC may still look to review compliance with the rules and issue fines for non-compliance up until April 2023 and could conduct retrospective reviews after that date for non-compliance occurring before the reforms are scrapped.
Moore Kingston Smith Employment Tax Director John Williams said: “Businesses that haven’t applied the rules accurately to date, or are uncertain how to apply them, should act now by reviewing procedures to ensure compliance and minimise the risk of penalties.”
Williams also stated that there remained uncertainty over IR35’s rules on determining employment status, citing a lack of guidance from HMRC and inconsistent outcomes that have occurred in employment status cases.
He said: “To improve compliance under IR35 and provide contractors with clarity on the rules, there is a need for the HMRC CEST tool to be updated and improved.”
