In a whirlwind week that saw stocks tumble and intense uncertainty rise amidst the Covid-19 crisis, controversial tax reforms to off-payroll working rules in the private sector known as IR35 have officially been postponed.
A welcome U-Turn from the commitment in the Spring Budget that vowed to push on with the reforms, the government’s decision to delay IR35 is necessary in lessening the strain on businesses and individuals during this challenging time.
In an announcement at the end of the parliamentary debate on the Budget speech, Steve Barclay, chief secretary to the Treasury, said: “The government is postponing the reforms to the off payroll working rules, IR35, from April 2020 to April 6, 2021. This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals.”
He added: “This is 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 tax as those employed directly.”
A collective sigh of relief could be heard from the 170,000 strong contractor market upon the announcement that the legislation was to be delayed for 12 months. The legislation, which would have made organisations responsible for determining whether a contractor carrying out work, was set to be enforceable from April 2020.
For a vast number of self-employed individuals, the major concern was that businesses would find the changes to off-payroll rules too complicated to comply with and let workers go as a result.
They weren’t wrong: when the news broke that the legislation was to be extended to the private sector, big names like Lloyds began distancing themselves from contractors, posting statements in print and online of their intention to only employ talent on a PAYE basis.
Others argued that the rules would result in the self-employed paying more tax than employees but without access to any benefits such as holiday and sickness cover.
The legislation is now expected to take effect on the 6th of April 2021, giving businesses and contractors another year to familiarise themselves with the legislation and prepare for the change.
Until then, the old rules still apply. That means:
– Public Sector: The organisation contracting services is responsible for determining the IR35 status of contractors.
– Private Sector: Contractors are responsible for determining their IR35 status.
If you are currently working with contractors through a personal service company and seek advice on risk and compliance around IR35, get in touch with our expert team today by calling 0333 772 0926.