Treasury’s claim that IR35 U-turn cost nothing ‘stretches credulity’, says compliance expert

The Treasury’s claim that its U-turn over abandoning off-payroll working rules last autumn cost the public purse nothing has been ridiculed by the chief of a tax firm which handles compliance with the legislation.

Short-lived chancellor Kwasi Kwarteng announced the scrapping of the rules, known as IR35, in September as part of his ill-fated mini Budget which was largely abandoned the following month by his successor Jeremy Hunt.

The reforms were initially announced in 2017 and were intended to clamp down on tax evasion among contractors, but even before the government’s repeal and reinstatement of the rules, they were unpopular in the freelance-reliant construction sector and were repeatedly pushed back.

The repeal had been due to take force from this April, two years after the policy was introduced in the private sector, and would once again have made freelancers responsible for determining their own employment status and for paying the appropriate amount of tax and national insurance contributions.

Last week, shadow financial secretary James Murray wrote to the Treasury asking the Hunt to reveal the estimated cost to the public purse, including money spent on IT systems and support staff, of removing and reinstating IR35 rules.

In a written response, financial secretary to the Treasury Victoria Atkins said: “The government did not incur any additional costs as a result of the announcement of the repeal and subsequent reinstatement of the off-payroll working rules”.

Dave Chaplin, chief executive of IR35 Shield, said it was “stretching credulity” to believe that civil servants put no work into the repeal and subsequent reinstatement of the policy.

Chaplin, who accused the government of throwing self-employed contractors “under the bus” when the chancellor pulled the plug, asked: “Are we seriously expected to believe that every civil servant on government payroll did absolutely nothing?”

He added: “From the business perspective, the market paused, and the advisory ships required an about-turn. That cost money. And then, we had to turn it back again. That cost money.

“The repeal that never happened was massive news. There are still individuals and firms who think the repeal is still happening, who are now operating non-compliantly as a result.

“It’s no wonder confusion still exists because we also know how much was spent on government communications. Zero. We know how much HMRC spent. Apparently zero. It’s not very responsible of government, is it?”

A Treasury spokesperson said the planning activities undertaken by officials in preperation for the policy change were undertaken using “existing resources”.