The new rules, which were due to come into action in April 2020, would have seen every medium and large private sector business in the UK become responsible for setting the tax status of any contract worker they use.
However, in light of the COVID-19 outbreak, the legislation now won’t come into effect until April 2021. This decision was also made following pressure from campaigners, contractors and the House of Lords, who warned that the inevitable loss of work due to coronavirus for contractors deemed inside IR35 would prove catastrophic.
Speaking in Parliament, Chief Secretary to the Treasury, Steve Barclay, said: “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.”
Following the news, IR35 and legal experts have welcomed the move, due to mounting confusion around the legislation with many contractors questioning what the new rules would mean. “This postponement will be a welcome relief for contractors who are facing great uncertainty as a result of the current COVID-19 pandemic,” said Matt Fryer, Head of Legal Services at Brookson Group. The new date will allow businesses who have yet to adequately prepare for the IR35 changes enough time to take appropriate action, with much clearer guidance from HMRC than they have had previously. Hopefully, some of the businesses who have implemented knee-jerk blanket bans on contractors will also now have time to reconsider their strategy for ensuring access to flexible expertise.”
David Greenhalgh, Partner at the employment law firm, Joelson, added: “From the outset, IR35 has been mired in controversy because there is a considerable lack of clarity in both the original legislation and HMRC’s guidelines. The significant economic and social impact of the COVID-19 crisis has allowed the Government to save face by u-turning on a legislative change that was ill-conceived and rushed through. With this delay, businesses and individuals contracting through an intermediary must take time to familiarise themselves with exactly what is expected of them, when IR35 is eventually introduced to the private sector.”
Dave Chaplin, Director and CEO of ContractorCalculator, added that while the delay is welcome, campaigners still need to act in order to push for the changes to ‘zero rights employment’. We must now keep pushing for changes to outlaw the disgrace of ‘zero rights employment’ and to make it illegal for firms to push employer’s taxation onto contractors. We must also push for the genuine review of IR35 legislation promised by the previous Chancellor, as part of the Conservatives’ planned review into self-employment. Over the next year, it’s time to finally overhaul the discredited IR35 legislation, which everyone knows doesn’t work and instead come up with a way to properly recognise contracting and freelancing in the tax system and ensure people are either classed as self-employed or are employees with full rights and benefits.”