Key changes from the IR35 review for clients and agencies

'Light touch' on tax rules for the self-employed

The Government announced its review into the “implementation” of IR35 reform at the start of the year. Straight away, the review was criticised for failing to address the reform itself, and now the Government has published its eagerly-awaited response to the review into changes to the off-payroll working rules. However, despite having spent more than a month consulting on the extension of IR35 reform to the private sector, the findings are few and far between.

Implementation Date

Earlier this month, HMRC announced that the incoming rules will apply to payments made for services provided on or after 6th April, rather than payments made on this date, which would have likely included work completed in March. This change was confirmed again in the review’s report.

“Light Touch” Compliance

The most notable development, particularly for clients and agencies, is that HMRC has confirmed that “customers will not have to pay penalties for errors relating to off-payroll in the first year, except in cases of deliberate non-compliance.”

Given IR35 tax liability tends to be far greater than any financial penalties imposed by HMRC, zero penalties for 12 months should not change the way private sector companies manage IR35 reform.

Whilst a lack of penalties is welcome while businesses get to grips with the reform’s implementation, the “softer approach” does not relate to HMRC’s compliance tactics nor how aggressively they target businesses.

Reform will not apply to clients who are “wholly overseas”

The Government has at last provided clarity for businesses who are “wholly overseas”, i.e. those who have no UK presence such as a UK branch, confirming that they “will amend the legislation to exclude wholly overseas organisations with no UK presence from having to consider the off-payroll working rules.”

This provides greater clarity for contractors operating directly with overseas businesses.

Clients will be required to provide clarity on the size of their business

Due to concerns held about how to determine the size of a company from contractors. Therefore, if the reform applies, the Government is “legislating to place a legal obligation on clients to respond to a request for information about their size from an agency or worker.”

We expect to see more guidance and clarification on this in the final legislation.

The Budget will be held on 11th March which will finalise the legislation. It is clear that reform will go ahead on 6th April and so private sector businesses should not delay in preparing for the new rules.


The full response to the IR35 review can be found on the Government website here.