Government provides glimmer of hope on IR35 tax reforms

The government has provided glimmers of hope that firms might be spared from new taxes set to hit the industry in the next two years.

The IR35 tax, the reverse VAT charge and the end of tax relief on red diesel are all due to come into force by spring 2022.

But speaking at an AGM for trade body Build UK, HS2 minister Andrew Stephenson said the government is keen to “reflect” on the changes.

He said: “In the past few months, particularly under the current chancellor [Rishi Sunak], we have seen the Treasury being more flexible and more creative than possibly any of us remember previously.

“So the Treasury [is] keen to hear views from the industry, we’re keen to take all that on board and think about this and reflect.”

Construction minister Nadhim Zahawi, who was also present at last week’s meeting, held via Zoom, added: “I think it’s worth just putting that on the table at this gathering – [the chancellor] has responded to the construction industry. If we look at what he did on stamp duty and the holiday for six months, I think that’s made a huge difference to housebuilders.”

But both ministers cautioned that the final decision on the new taxes was down to the chancellor, who is currently preparing his autumn budget.

And Stephenson warned on the end of the tax exemption on red diesel: “We do have commitments, climate change commitments, we do have to look at how we reach net zero by 2050, so it’s right that things like red diesel are looked at but it’s got to be done in a way that doesn’t pose real challenges for certain sectors for the economy. We need to get this right before any change comes.”

The exemption is currently set to come to an end in April 2022, while the domestic reverse VAT charge on construction firms is due to come into effect on 1 March 2021.

A proposal by former Brexit secretary David Davis to delay the introduction of the IR35 tax reforms beyond April 2021 was defeated in parliament in July.

The tax, which would see some contractors pay around 25% more tax every year if introduced, was originally due to come into force in April this year before being delayed by the government by 12 months to ease the burden on construction firms during the covid-19 pandemic.