Private sector businesses will only have to apply the changes to IR35 off-payroll legislation to contracts carried out after 6 April 2020, as the government makes a concession to give companies more time to prepare.
This in effect means the changes to IR35 will now only apply to new contracts or contracts that businesses expect to continue after the April rollout date, and will not be applied to payments made for work done before the change.
The amendment is a direct response to concerns from businesses that the current schedule for the rollout does not provide enough time to prepare, and comes ahead of the publication of a government review.
But while the amendment has been welcomed by some as giving businesses a little more time, many experts have said it does not go far enough to address the key concerns the legislation poses.
- Half of contractors would ask for a pay rise and benefits if found to fall within IR35, survey finds
- Firms using third-party recruiters could still face tax bills under IR35 changes
- Non-compliance will ‘thrive’ after IR35 changes, recruiters warn
Matt Fryer, head of legal services at Brookson Group, said this was a welcome change that would enable businesses to continue to pay contractors caught by IR35 for work carried out up to 6 April. “This relaxation should help with the implementation of the rules and avoid a spike in invoicing and chasing for payments that businesses would have had to undertake.
“It also suggests HMRC will be pragmatic in its approach to compliance in the first weeks of the legislation change.”
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 similar tax regardless of whether they are an employee or contractor.
Get more HR and employment law news like this delivered straight to your inbox every day – sign up to People Management’s PM Daily newsletter
Changes coming into force in the private sector in April shift the responsibility of assessing which contractors fall into this category on to employers. The changes have applied to public sector employers since 2017.
David Williams-Richardson, employer solutions partner at RSM, said it was clear HMRC was listening to concerns, and the change should ease the burden on businesses and recruiters.
But, he added, the real significance of the announcement was that it “underlines the government's commitment to pressing ahead with new off-payroll rules from 6 April 2020 – despite the pressure from some recruiters and others to defer their introduction”.
Williams-Richardson said the “drip feed” of changes contributed to the uncertainty businesses faced. Both a recently announced probe by a House of Lords committee and the government’s own review could influence the outcome of the final legislation, he said: “Businesses can't afford to take their eye off the ball.”
The Lords Finance Bill Sub-Committee announced last week it would be looking into the change, and will this afternoon be hearing evidence from tax experts and business groups on how ready businesses are for the change.
Matthew Sharp, tax specialist at Fieldfisher, said: "Many of the clients we work with have expressed frustration with HMRC's process for determining employment status for tax purposes, and this announcement reveals no plans to improve this.
"It seems the government has not learned from the mistakes made in 2017, when IR35 was rolled out to the public sector, resulting in legal wrangles that are still going through the courts today.
"Many businesses fear losing vast swathes of their workforce if the processes for assessing tax status is not adjusted to reflect the realities of modern working practices."