|Pincent Masons felt that the scrapping of the proposed changes to the IR35 rules is likely to be met with relief from businesses in the short term, but did accept that fundamental problems with the system still remain.
The mini-Budget change would have meant returning the burden for compliance from the client to the contractors - a move generally welcomed by the freelance community. But the U-turn, leaves the responsibility with the end client. (See: Joy short lived as plans to scrap IR35 reforms are scrapped - Oct 2022, Shout99)
Pincent Masons recognised that many businesses had been frustrated that they had spent significant amounts of time and money to become compliant with the new IR35 rules and under the mini-Budget proposals, would now need to repeat the process as the rules changed yet again. They felt that there was some relief that this will not now need to happen.
Penny Simmons of Pincent Masons said: “In the longer term, IR35 still doesn’t work properly and needs to be heavily reformed. However in the short term, businesses will be relieved that they don’t have to scrap all the work they have done in the last few years to be compliant with the current rules."
However, businesses say that the 2021 rules, which will now stay in place, are still much too burdensome in requiring businesses to take legal responsibility for all the contractors and third parties in their labour supply chains. Pinsent Masons says that far-reaching reform of the system now needs to take place.
Penny Simmons said: “The mini-Budget was an admission that the 2021 version of the IR35 rules wasn’t working – it imposed too much of a compliance burden on businesses. However it’s broadly accepted that the 2017 version of the IR35 rules that were in place until last year didn’t work either and led to widespread tax avoidance.
“It would be good to see the Treasury take this opportunity to undertake a comprehensive review of the IR35 rules and commit to real reform. That should include dealing with one of the major issues with IR35 – the complex test for determining whether someone should be an employee or self-employed.
“The Government should now consult with businesses, tax professionals and stakeholders across industry to develop a tax system that’s fairer to businesses and off-payroll workers and isn’t vulnerable to tax avoidance.
“There can never be a return to the ‘old way’ of handling off-payroll work, involving contractors being paid through personal service companies. The tax risk landscape has shifted hugely over the past five years.
"The introduction of corporate criminal tax offences means that businesses must now have far greater oversight of their supply chains. If their contractors evade tax, businesses are now exposed to criminal liability if they know that they should have been paying those contractors as employees.”
Further IR35 information
For more information about all aspects of IR35, including the controversial IR35 reforms see Shout99's News on IR35 section.
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