The controversial off-payroll (IR35) changes, which were due to go ahead on 6th April 2020 have been deferred until April 2021, due to the economic fallout caused by the COVID-19 emergency.
The Chief Secretary to the Treasury, Steve Barclay MP, made the announcement in the House of Commons on Tuesday night. You can see the video here
Barclay stated that this was a delay rather than a cancellation, pointing out that it was only fair that the self-employed working via limited companies and traditional employees pay ‘broadly the same amount of tax’.
What are the Off-Payroll Rules
IR35 was first implemented in 2000. Its aim is to ensure that limited company workers who undertake paid work in a manner more akin to traditional employees are taxed in the same way as employees. IR35 (as contained in Section 8 of the ITEPA 2003) is self-policing, in that limited company owners are responsible for determining their employment status.
The Government has introduced further measures, as they believe many limited company workers are not operating IR35 correctly. These ‘off-payroll’ rules place the onus of determining employment status onto clients. These changes were first rolled out to public sector organisations in April 2017.
Unfortunately, many clients, fearful of potential penalties for getting status decisions wrong, have elected to place entire groups of contractors ‘inside IR35’, or have stopped using limited company contractors altogether in anticipation of the original 6th April 2020 start date for private sector organisations.
So, these rules are now due to go ahead in April 2021 instead.
What does this deferral mean?
The statement made in the Commons will be backed up by official statement in due course, however, as things stand, the off-payroll implementation will still take place. But now it will be in April 2021 rather than in 2020.
Given that the reason made for delaying these reforms was the COVID-19 outbreak, it currently seems unlikely that there will be an economic case for a delay of merely a year. However, unless the Government cancels the reforms entirely in the meantime, the contracting industry should continue to prepare in advance.
At least, with another 12 months to play with, this will give clients far more time to get to grips with the legislation, and increase the chances of contractors being assessed correctly, and not forced into ‘inside IR35’ arrangements incorrectly.
For ultimate peace of mind and defence in the event of an IR35 investigation, take out Qdos’ award-winning IR35 insurance – from just £99 per year. This covers up to £50,000 of professional representation and potential tax liabilities up to your chosen level of indemnity.