IR35 tax, reverse VAT charge and red diesel tax all set to hit firms within next two years

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

The IR35 tax and the reverse VAT charge are due to come into force next spring while tax relief on red diesel is due to end in April 2022.

rishi index

Chancellor Rishi Sunak is expected to deliver his autumn budget in November

But, speaking at an AGM for trade body Build UK, HS2 minister Andrew Stephenson said the government was keen to 鈥渞eflect鈥� on the changes.

He said: 鈥淚n 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.

鈥淪o the Treasury [is] keen to hear views from the industry, we鈥檙e keen to take all that on board and think about this and reflect.鈥�

Construction minister Nadhim Zahawi, who was also present at last week鈥檚 meeting, held via Zoom, added: 鈥淚 think it鈥檚 worth just putting that on the table at this gathering 鈥� [the chancellor] has responded to the construction industry.

鈥淚f we look at what he did on stamp duty and the holiday for six months, I think that鈥檚 made a huge difference to housebuilders.鈥�

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: 鈥淲e do have commitments, climate change commitments, we do have to look at how we reach net zero by 2050, so it鈥檚 right that things like red diesel are looked at.  But it has got to be done in a way that doesn鈥檛 pose real challenges for certain sectors for the economy. We need to get this right before any change comes.鈥�

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.

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