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Proposed Extension of IR35 to be Delayed

In response to the ongoing spread of COVID-19 the Government has announced that the roll out of IR35 to the private sector shall be delayed until the spring of 2021

On 17 March 2020 the Chief Secretary to the Treasury, Steve Barclay, announced to Parliament that "the government is postponing the reforms to the off-payroll working rules, IR35, from 6 April 2020 to 6 April 2021." The decision was announced among a £330bn financial package for the UK economy that includes a business rate holiday, emergency loans for companies, and financial assistance to airlines.

Barclay said the postponement was in "response to the ongoing spread of COVID-19 to help businesses and individuals," and insisted it will still go ahead as planned the following year.

What is IR35?

IR35 is a tax policy that targets disguised employment or off-payroll working, where workers look and act like employee but avoid paying regular income tax and national income contributions by billing for their services through personal service companies (PSCs), which are taxed at lower Corporation Tax rates. Contractors who find themselves to be "inside IR35", i.e. caught by the scope of the legislation, are required to pay the same tax and national insurance contributions as full-time employees, they do not however receive benefits such as holiday or sick pay, pension, or parental leave.

Originally, the assessment of whether IR35 should apply was left with the PSCs. In 2017 the IR35 rules in the public sector changed to make the end user of the worker's services responsible for assessing whether IR35 should apply and potentially for making the deductions at source if it did.

What was going to change in April 2020?

The proposed regulation change would have moved the responsibility for assessing IR35 and potentially paying tax deductions to medium and large private businesses from April 2020. The private business would have to establish the tax status of contractors and communicate that to the company responsible for making the tax deductions with the penalty for not making the assessment being responsibility to make the deductions and pay to HMRC.

Analysis

Many large private companies had previously decided to institute a blanket ban on the use of PSCs as a response to the planned April 2020 changes rather than risk being liable for the contractor's tax bill. However, the change to the proposed timetable may lead to a review of this stance and use of the extra time to April 2021 to put revised contracts and systems in place to be ready for the new rules.

If you have any Governance, Procurement & Information queries on this matter please contact Daniel Milnes or Gemma Duxbury.

If you have any Employment queries on this matter please contact Emma Swan.

If you have any Commercial queries on this matter please contact John Pickervance.

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