Covid-19 emergency postpones tax reforms

The UK government has delayed proposed changes to the IR35 tax rules until 2021 in response to the COVID-19 crisis.  MP Steve Barclay, the chief secretary to the treasury, unexpectedly announced the move on the evening of March 17th and was keen to stress that it was merely a postponement.

Mr Barclay said: “I can also this evening announce the government is postponing the reforms to the off-payroll working rules, IR35, from April 2020 to April 6, 2021. 

“This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals.

“This is a deferral 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 the same tax as those employed directly.”

IR35 changes

Few could argue that introducing significant changes to the tax system during a time of global fallout and uncertainty would have been a sensible move.  However, there have also been arguments made that these changes should have been scrapped long before the coronavirus pandemic began.

HMRC intended the IR35 changes to create a clear distinction between independent contractors and full-time employees in the private sector, in order to ensure proper tax contributions.  To achieve this, IR35 shifts the responsibility for determining the status of contract workers and the associated tax risk to medium and large sized private companies.  We recently covered the shifting of risk and responsibility that the proposed IR35 changes would bring, and yesterday’s delay serves to prolong these arguments for another year.

Positive reception

Freelancers and contractors who, under IR35, would have been paid and taxed similarly to regular employees but without receiving any of the security or protections that go along with permanent employment will be relieved.  This will be particularly welcome given the current uncertain environment, as being inside IR35 would have made them liable to be fired without reason.

The contractors’ relief will likely be shared by the medium and large sized businesses who have not yet made the necessary changes.  They now have extra time to ensure they are compliant and de-risked as far as possible before implementation.  There is also more time to adopt and streamline the process by which they asses the status of their contractors.

Challenges ahead

The delay will not be received as positively by those businesses that have already made the required changes in advance of the April 6th deadline.  Some will need to re-engage contractors or attempt to undo their changes in order to operate optimally.  Some will be hoping they are not past the point of no return.

Given the wider situation and the challenges created by the coronavirus outbreak, critical business projects will have to continue, and contractors may well be key to many of these.  Whilst implementing the IR35 changes at this moment would undoubtedly cause more disruption, delaying them creates its own challenges.  To talk through the situation and see how Briars can assist you –please contact us here.