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Lee Sharpe considers HMRC's recent announcement forestalling the review of its implementation of the rollout of IR35 Intermediaries regime to the private sector.

The latest extension (I refuse to call it an “enhancement”) of the scope of IR35 is set to apply from 6 April 2020. Simply, large and medium-sized businesses in the private sector will be obliged to evaluate any one-man-band contractor companies that are engaged to work for them and, if those engaging businesses determine that the contractors are essentially employees, then the engaging businesses (or their agents) will be obliged to operate PAYE on any payments made to the contractor company, from early April.

We have previously written about the introduction of IR35 2.0, when it was applied to Public Sector Bodies – a typical example being an NHS hospital or medical GP practice – which might engage medical specialists or locum GPs through companies. We also covered the highly questionable claims made by HMRC as to the effectiveness of those changes. Broadly speaking, IR35 3.0 is more of the same, only worse, and we can expect more outlandish claims, less accuracy and worse actual compliance to boot.

Meanwhile, in the aftermath of the Loan Charge, HMRC is being scrutinised on its implementation of the latest phase of IR35. Which is a bit like checking that Mr. Fox has indeed made sure that all the hens have taken out adequate pension provision. 

Nevertheless – and bearing in mind that the focus here is simply on implementation – HMRC has just announced that it has decided to effectively retard the implementation:

"Originally, the regime was meant to apply to any payments made on or after 6 April 2020, regardless of when the work, that was being paid for, had actually been performed

But now the new regime will apply to payments made only in respect of work carried out on or after 6 April 2020."

While it might be argued that HMRC's original approach at least had simplicity on its side, it will probably not be that much of a challenge for engagers to ascertain which payments are for what work - particularly if they apply something as straight forwards as paying a month in arrears - in which case, under the new rules, the April payment for March work will now be under the pre-IR35 3.0 arrangements.

It might seem reasonable to conclude that perhaps HMRC really is worried about accusations of retrospection / retroaction; alas, I fear that this is rather more to do with making sure that HMRC’s new BFF engagers find it easier to run out existing contracts to 31 March or 5 April precisely, without having to worry about accounting for the final payment under PAYE. Or, as HMRC put it:

“…the government has listened and taken action early to give businesses certainty and more time to prepare to ensure the smooth and successful implementation of the reforms…”

Which includes a remarkably ‘adventurous’ use of the word “early”, even for HMRC, given that we are only a few weeks away from the relevant start date.

Dave Chaplin, CEO of ContractorCalculator and IR35 Shield, responded:

“The Government’s change in approach is a cynical attempt to buy more time because the politicians are aware they have a problem that they need to solve.

They announced the review that wasn’t really a review, and then back tracked by saying it was to ensure a smooth implementation.  It will be anything but smooth, as the Government has very little chance of clearing up the mess made by HMRC with its draft legislation in the time given.  The only option open to them is to delay for another year.”