IR35 Reform Postponed
The government announced on 17 March that the reforms to the off-payroll working rules (IR35) due to come into force on 6 April 2020 will be deferred until 6 April 2021.
The IR35 reforms are currently in draft form and set out in the Finance Bill 2019-21 (the Bill) which will now be amended to reflect the postponed commencement date. The draft Bill extends the application of IR35 provisions set out in chapter 10 of the Income Tax (Earnings and Pensions) Act 2003 to medium and large clients in the private sector. As of yet, the government maintains its commitment to introduce these reforms but recognises that to do so at this time would place additional pressure on independent contractors, many of whom are suffering as a result of Covid-19.
The announced deferment comes soon after the Finance Bill Sub-Committee heavily criticised representatives of HM Treasury and HMRC for their determination to implement the reforms despite the challenges posed by Covid-19. Lord Forsyth, in particular, showed concern that upholding the April 2020 commencement date would place unnecessary administrative costs on medium and large businesses and would lead to reduced income and dismissals among independent contractors who are already struggling with widespread disruption.
For the public sector:
The public sector is already subject to the IR35 provisions set out at chapter 10 of the Income Tax (Earnings and Pensions) Act 2003 which will continue to apply unaffected, as introduced by the Finance Act 2017. The Bill has been drafted to introduce a new process for determining the status of individuals and handling disputes which public businesses may have been preparing to implement, however, this will now also be postponed. Public clients will be required to provide information on their understanding of the individual’s status as currently practiced and will not be required to prepare ‘status determination statements’ under the new rules until 2021. Additionally, public clients must continue to provide responses to information requests within 31 days of receipt under the current rules rather than introduce the new status determination appeal procedure set out in the Bill.
2021 Update:
Since this article was first posted, off-payroll working rules are now in force. For further reading on this subject, we recommend the following posts:
- Webinar: IR35 – Ask the Tax Experts
- Podcast: IR35 is HMRC’s Tax Avoidance Legislation
- Lessons from HMRC v Kickabout Productions Ltd , a case covering IR35 in action.
For further information and updates on IR35 and Covid-19 please contact our employment team
