The unpopular Making Tax Digital scheme was omitted from an 80% shorter than originally proposed Finance Bill 2017.
Its omission hints at governmental concerns on behalf of the self-employed and that the timing of the snap election will not allow for the necessary scrutiny MTD needs to be a workable endeavour.
But it is a bitter-sweet victory for such traders, particularly contractors, because although they will likely embrace the omission (which could delay MTD’s start date), the dreaded IR35 reforms were included in the bill.
And more than just merely included, the reforms were also amended at the last-minute with potentially chaotic consequences for parties who have already been paid — and made payments — under them.
An IR35 advisory, Bauer and Cottrell which was the first to flag up the amendment, explains that ‘public authority’ has been revised to put private sector retail businesses serving the NHS, such as high street pharmacies, out of scope.
Without the change, a note by the government clarifies, such businesses (including opticians) would have had to consider if the off-payroll rules apply to all contractors working for them through a PSC/limited company.
Significantly though, the change — which retains the need for NHS hospitals to consider the rules — is to be applied retrospectively, meaning it will have effect since April 6th 2017.
How are the affected parties going to deal with payments already made?
“It is shocking that we are three whole weeks into the new IR35 rules for the public sector to find that HMRC have only just grasped how wide-ranging the rules are and the unintended consequences of this policy.” said Kate Cottrell
She added that the new framework has already caused “significant chaos” for those PSCs that realise they are affected, which is far from the total number that are affected.
Now, her reading of the revision indicates that retail pharmacists and opticians who undertake NHS work will have the upper hand, by “having the pick of the contractors’ skills.”
In line with the concerns, the Association of Charted Certified Accountants said yesterday that the implementation of the new IR35 rules puts “additional pressure on the public sector.”
And this comes at a time when “the government most needs this additional resource to deal with major changes to existing processes, including implementation of digital systems,” the chartered tax body said, seeming to refer to the NHS.
The body believes that the off-payroll framework should have gone the way of MTD — been excluded from the bill and delayed until after the election — because it has not had “the appropriate time allocated for consideration.”
The Freelancer and Contractor Services Association (FCSA) sounded in agreement, as it accused the government of putting a snap vote ahead of legislative due process.
“The government has not only ignored the views of stakeholders but also the views of the opposition,” the FCSA condemned. “The shadow economic secretary Jonathan Reynolds MP [for example].”
In a recent speech on the Finance Bill, Mr Reynolds descried the IR35 reforms as “a succession of piecemeal changes that risk hurting people unwillingly caught in the net of self-employment, rather than wealthy tax avoiders.”
Another change to taxation that many regard as piecemeal – the dividend allowance cut – was removed from yesterday’s bill, in a move that the FCSA welcomed.
‘Delay on dividend reform’
In particular, the clause to change the amount of dividend income that is charged at the nil rate (currently £5,000), was dropped, raising the prospect it will be at least delayed. A clause to impose penalties for enablers of defeated tax avoidance schemes was dropped too.
“[The government’s] statement today that, if re-elected, they will legislate ‘at the earliest opportunity’ for the clauses dropped is helpful”, said the Chartered Institute of Taxation.
“It would be even more helpful if they could clarify whether they intend the original timings (with many measures in effect from the start of April 2017), to apply to all the clauses dropped or whether some will have their introduction delayed until a later point.”