IR35 reforms postponed until April 2021

Chief secretary to the Treasury Steve Barclay announced the delay yesterday
Image: Kirsty Wigglesworth/AP/Shutterstock

Changes to the IR35 off-payroll working rules in the private sector have been delayed by 12 months in response to the growing business uncertainty surrounding the coronavirus pandemic.

The legislation, which would have made organisations responsible for determining whether a contractor carrying out work for them should be treated as an employee for tax purposes, was due to be introduced next month.

Chief secretary to the Treasury Steve Barclay announced last night: “This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals.

“This is a deferral and not a cancellation, and the government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company pay broadly the same amount of tax as those employed directly.”

The legislation is now expected to take effect on 6 April 2021, rather than 6 April 2020.

Members of the House of Lords had called for the legislation to be delayed at a hearing on Monday (16 March). At a finance bill sub-committee in Parliament, Lord Forsyth of Drumlean asked the Treasury and HM Revenue & Customs whether they had considered deferring the changes, which he warned could have a “very damaging effect on the incomes of many self-employed contractors”.

He said: “I wondered whether HMRC had considered, given the enormous financial impact which we are about to experience as a result of coronavirus, whether it might not be sensible for you to defer introducing these changes at least for six months if not a year.

“What is being proposed in the Budget I think is generally acknowledged to be inadequate in terms of the scale of the crisis and it does seem rather perverse to add an additional burden of this kind on business which could easily be deferred for six or 12 months.”

The announcement was welcomed by business and contractor groups, many of which believed introducing the legislation next month would have led to thousands of self-employed contractors being put out of work.

Dave Chaplin, CEO at ContractorCalculator, said: “We warmly welcome the announcement that the government has seen sense and delayed the damaging IR35 off-payroll tax roll-out for a year.

“With contractors facing the prospect of losing work with no sick pay, it was clearly the right and sensible thing to do.”

James Poyser, CEO of inniAccounts and founder of the resource site said: “The Lords made it pretty clear in [Monday’s] committee hearing that the Treasury’s IR35 position was increasingly untenable, with the rising backdrop of coronavirus.

“I do welcome this pause – it means that contractors can now switch gears and put all of their energy into the wider challenges we’ll all going to face in the coming months.”

With contractors facing the prospect of losing work with no sick pay, it was clearly the right and sensible thing to do,” – Dave Chaplin, ContractorCalculator

“This will also give time for the Lords review to be published, and we hope that the Treasury and HMRC listen to their recommendations before attempting to re-table this legislation for April 2021.”

The delay will also  give businesses time to properly prepare for IR35 and HMRC the opportunity to improve communications around the changes, suggested Matthew Sharp, a lawyer at Fieldfisher.

“Once the current coronavirus crisis subsides, government should use this 12 month extension to significantly improve the quality of its communication on this issue and address concerns with the efficacy of HMRC’s online tax assessment tool, which has proved to be unfit for purpose,” said Sharp.

“Businesses meanwhile are urged to make the most of this reprieve to fully prepare their workforces for the new rules by mapping their current and future exposure for IR35 and ensuring they are set up to make deductions for tax where necessary.”

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