Contractors welcome IR35 delay

The UK Government has delayed the introduction of new IR35 tax rules by a year as part of a package of measure to help business cope with the impact of the coronavirus.

Contractors welcome IR35 delay

IR35 is an anti-tax avoidance rule that applies to all contractors and freelancers who do not fall under HM Revenue & Customs’ definition of being self-employed.

As a result of changes introduced in last year’s Budget, from April 2020, every medium and large private sector business in the UK was due to become responsible for setting the tax status of any contract worker they use.

In response to the ongoing spread of COVID-19, the government announced that the reforms will be deferred to 6 April 2021 to help businesses and individuals.

BESA head of employment affairs, Paula Samuels, said: “This is a welcome reprieve for our members, many of whom are already suffering the effects from the financial and economic fall-out of coronavirus.”

Catherine McManus, tax partner at Wylie & Bisset, said that the changes would have had a major impact on those working in the contractor industry, as many would have either had to accept being treated as employees or, worse still, would have been out of work as large organisations felt the pressure of applying payroll to greater numbers as part of the shifting obligations of the long standing IR35 rules.

She said: “While the delay will of course be welcomed for those in the contracting sector, it does not change the fundamental application of the rules as they currently exist, nor does it change the fact that these rules are still high on HMRC’s agenda for target and the intention is still to force large organisations to comply next year.

“Contractors, and those who use contractors, should still prepare for changes and make decisions on their business needs in this area in anticipation of what will happen next year.

“And we can’t ignore that, even without the rule change, businesses feeling the pressure and impact of the coronavirus may find themselves having to make tough decisions on contractor requirements in the short to medium term, which could still hit the industry hard.

“Even so, breaking down another layer of administration and compliance in the short term and giving everyone a little more time to prepare will, no doubt be beneficial.”

Ms McManus suggests that, by taking the appropriate steps, both contractors and businesses can get ready for the new era, even if it is now a little further away.

John Chaplin, EY people advisory partner, said: “I broadly welcome the news that the planned IR35 implementation has been delayed for 12 months as it provides some help to business and freelancers during a very challenging period.

“Businesses will be able to continue to engage contingent workers without having to worry about potential additional costs such as employer’s NIC and contract workers will have a 12-month period without having to be concerned about potential increase in taxes that these rules meant for many. 

“The vast majority of businesses who engage contingent workers have already completed the work ahead of the changes, communicated these to their workers and many have offered permanent employed positions to at least some. It remains to be seen what those businesses will do now, but I doubt that they will all reverse the work of the last several months only to then go through the process again in the lead up to the deferred implementation date of April 2021.

“It also sends a difficult message to employers, once again, that planning in advance for tax changes is not always the safest method. Those that have invested the most time and energy in preparing for these changes early will be the ones most affected by the decision to delay, whereas those leaving any decisions to the last minute will have the biggest reason to celebrate.”

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