Buried in the pile of government measures devised to protect the economy and help UK business and individuals survive the Covid-19 crisis was the announcement that reform to the off-payroll working rules has been delayed by a year.
As a result, unpopular changes to this IR35 legislation (also referred to as IR35 reform) will now be introduced to the private sector on April 6 2021 and not earlier last month [April], as was initially planned — this is despite the arrival of a House of Lords report that described the legislation itself as unfair and more recently, a tabled amendment to the Finance Bill that called for the changes to be postponed by two further years, until 2023 - which was overlooked in the House of Commons
While private sector reform is needless, the government did at least make the right call in delaying it by one year.
Even without Covid-19, making medium and large private sector companies responsible for deciding a contractor’s tax status (known as IR35 status), would have been disruptive.
Key Points
- The government has delayed the new IR35 rules
- It is still unclear where a contractor fits in to this
- Some employers may not hire contractors outside IR35 regardless
Doing it when the UK is at a standstill could have been chaotic, with thousands of contractors being subject to rushed, panicked and ultimately risk-averse IR35 decisions by resource-strapped and time-poor businesses whose focus is elsewhere.
This timely delay to IR35 reform in the private sector, which sees limited company contractors and consultants continue to decide if their working arrangement reflects self-employment or employment, also means these workers will carry the IR35 liability — in other words, the risk — for 12 more months.
But as welcome as this development is, there are a number of pertinent questions that independent workers — whether financial consultants or IT contractors — would like answering.
Thousands of contractors want to know what happens now.
Some common questions are: “Is there anything I need to do? Does my client’s IR35 decision stand? Can I revert to contract working if I was forced to work PAYE in anticipation of reform?”
Given working under the wrong IR35 status can result in huge retrospective tax bills for private sector contractors, I will tackle a number of the issues that have arisen as a result of the delay to reform.
What does the delay mean in layman’s terms?
Contractors will carry on assessing their own IR35 status until April 6 2021, when engaged by medium and large private sector businesses — in other words, the contractor will decide if they provide their services as a self-employed worker (outside IR35) or in a fashion that reflects employment (inside IR35).
When reform is rolled out next year, private sector companies will become responsible for administering the IR35 rules, while the liability that sits with contractors will be shifted to the party in charge of paying the worker, whether that is the client itself or the recruiter.
What can I do if my client placed me inside IR35?
Contractors do not have to accept this because their client will not become legally obliged to determine IR35 status until April 6 2021.
