In an unexpected move yesterday evening, the Government called a temporary halt to the introduction of IR35 reforms. Originally due to come into effect on 6th April, they have now been delayed by a year until April 2021 as the fallout from the spread of Covid-19 continues to become clear.
“This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals,” declared Steve Barclay MP, Chief Secretary to the Treasury in the House of Commons yesterday.
“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.”
Pressure from the House of Lords
The move came after pressure from campaigners, contractors and the House of Lords ramped up in light of the global Covid-19 pandemic. This was despite only days ago the Chancellor, Rishi Sunak, declaring as part of his Budget that the reforms would press ahead.
On Monday, Lord Forsyth of Drumlean spoke at the finance bill sub-committee in parliament, warning the IR35 reforms could have a “very damaging effect on the incomes of many self-employed contractors”.
“We’ve had quite a lot of evidence from people directly affected by these proposed changes, and the summary of what is being suggested by these contractors is they will find themselves under very severe pressure financially as a result of those changes.
“And I wondered whether HMRC had considered, given the enormous financial impact which we are about to experience as a result of Covid-19, 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.”
It seems his words may have had the desired effect in bringing to the attention of the Treasury the fears that if contractors deemed inside IR35 – and therefore effectively in zero-rights employment – were to lose work due to the pandemic, then it could prove financially catastrophic.
What next for IR35?
As things stand, the reforms have simply been deferred until April 2021 with no suggestion that there will be further changes to the legislation, which is understandable considering the Government has other priorities right now. The reason for the deferral is one of timing and it not being right to introduce the changes in the current climate.
Contractors must continue to have regard to the fact that under the existing rules they have always been legally responsible for making determination on their IR35 status and should consider taking advice from a third-party specialist to help make the decision. IR35 is an ever-present exposure for contractors and they need to remain aware of the responsibility and liability they will carry for another 12 months. If IR35 is not dealt with properly it can lead to costly and lengthy cases, and possibly a monetary demand being made from HMRC, so tax liability and investigation insurance is an important consideration.
For now, contractors, businesses, and recruiters can breath a sigh of relief that changes to off-payroll working rules now won’t go ahead in April as planned. Aside from the fact that the global Covid-19 pandemic is putting unprecedented and immediate pressure on many British businesses, anecdotal evidence suggests that many were already ill-prepared to manage planned IR35 reforms. Whilst they should not let IR35 fall off the radar it is time to suspend worrying about what the reforms will mean for them, and focus on keeping themselves and their families safe and well during these unusual and naturally worrying times.