IR35 reforms postponed in wake of coronavirus

Year-long delay to the rollout of controversial changes to private sector off-payroll rules has been greeted with a ‘sigh of relief’ from many 

The rollout of changes to private sector off-payroll rules has been delayed as part of the government’s response to the coronavirus outbreak.

Speaking in the Commons yesterday, Steve Barclay, chief secretary to the Treasury, said the changes to IR35 due to come into force at the start of next month would be pushed back a year and would now begin on 6 April 2021. “This is a deferral in response to the ongoing threat of Covid-19 to help businesses and individuals,” he said.

Barclay added that this was “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”.

The surprise move reverses the government’s long-held position that the rollout would happen despite widespread opposition from both employers and freelance worker groups. As recently as last week’s budget there had been every indication that the change would go ahead as planned.

The announcement has been welcomed by employers, recruiters and freelance groups, many of whom had been calling for a delay long before the coronavirus outbreak.

Ged Mason, CEO of Morson Group, said the delay came at a “poignant time” for UK industry. “Many businesses that rely on flexible talent and contractor populations [will] take a sigh of relief,” he said.

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Under IR35, if a contractor is deemed to carry out similar or the same work as a permanent staff member, their employer is required to deduct income tax and national insurance contributions as if they were an employee. The legislation was introduced to ensure workers undertaking similar roles paid the same tax regardless of whether they were an employee or contractor.

The changes to IR35 in the private sector will shift the responsibility of assessing which contractors fall into this category to employers. The changes have applied to public sector employers since 2017.

Matt Fryer, head of legal services at Brookson Group, said the delay would allow businesses that have not yet adequately prepared for the change enough time to take action. “Hopefully some of the businesses that have implemented knee-jerk blanket bans on contractors will now have time to reconsider their strategy for ensuring access to flexible expertise,” he said.

Fryer added that employers now have clearer guidance from HMRC than when the initial date for the rollout was set. “Those end hirers that have invested in getting IR35 right are well prepared for next April and can now use the next 12 months to consider how to accommodate [personal service companies] for roles currently thought to be inside IR35,” he said. 

“We would advise all businesses that work with contractors to build IR35 compliance into their planning for the next financial year, bearing in mind that it has taken many firms six months to prepare for the initial deadline.”

Julia Kermode, chief executive of the FCSA, said the delay would “enable businesses to focus on the immediate complexities of responding to the coronavirus”, which she said must take priority. “I very much hope that some detailed analysis of the wider implications of this reform can be undertaken in the coming months in order to establish whether or not it should be scrapped entirely,” she added.

Many companies had already spent a large amount of time and effort preparing for the changes, said Sam Hurley, operations director at APSCo. Nonetheless, she said, many in the staffing and recruitment sector would welcome the change. “Now is not the time to make flexible labour more expensive or the hiring of contingent labour more difficult, when our sector is facing unprecedented times,” she said.

Hurley added that the delay could also “kick start” the hiring of remote workers who operate through personal service companies, noting that many employers had put a blanket ban on using contractors as a response to the IR35 changes.

The delay was also welcomed by Andy Chamberlain, director of policy at IPSE, which represents self-employed workers. He described it as a “sensible step” to limit damage to the self employed. "It is right and responsible to delay the changes to IR35 for at least a year during the coronavirus crisis, to reduce the strain and income loss for self-employed businesses,” he said.

But Chamberlain called on the government to do more to protect the income of contractors. “It must create an emergency income protection fund to keep the UK’s crucial self-employed businesses afloat,” he said.