No further delay to IR35 reforms
Feb 09, 2021
Last April we reported that due to the Covid-19 pandemic, the government had delayed the implementation of IR35 rule changes, a decision which was highly welcomed. The reforms were due to come into effect from 6 April 2020, but this was pushed back to 6 April 2021. This postponed date is now approaching fast, but unfortunately any hopes that the changes could be delayed yet further or scrapped altogether have been dashed. The government has announced that they will go ahead with IR35 reforms this year, regardless of the ongoing pressures caused by coronavirus. This is despite a petition being launched which attracted nearly 14,000 signatures, calling for a delay in implementation until the Covid-19 situation has been resolved.
Why is IR35 changing?
IR35, also known as off-payroll working, applies when self-employed contractors and freelancers supply their services to a client via their own personal service companies, rather than being employed by the firm. Typically this kind of arrangement means they are treated as ‘deemed employees’ by HMRC, and it can result in them having less tax to pay. However the IR35 reforms mean that going forwards their tax and national insurance contributions will be brought more in line with those paid by employees.
The government is keen to reduce the disparity in tax paid between employees and contractors where their engagement meets the tests of an employment relationship. It also wishes to avoid further delay in private sector reform, as the new rules have been in place in the public sector since 2017.
Who is affected by the IR35 reforms?
The new rules coming in from 6 April 2021 are scheduled to apply to large and medium-sized businesses as defined by the Companies Act. Those businesses will be required to consider whether or not a worker would be regarded as an employee if directly engaged, and if so deduct tax and national insurance from their payments as if they were an employee.
The new rule change does not apply if the end user is classed as a small business under Companies Act rules, in which case the current IR35 rules will continue to apply. This means that for the time being at least, small organisations will not be required to consider the status of their workers or deduct tax.
There are calls for more support to ensure businesses fully understand the upcoming changes, so that end hirers and recruitment agencies don’t simply issue blanket bans on working with limited company contractors. There is also concern regarding the financial costs associated with implementing these changes, which many businesses may struggle to afford during these challenging times.
Please contact us if you are affected by these changes as we may be able to help you with determining your workers’ employment status. Or if you are a worker supplying your services through your own company, we will also be able to advise you on the implications of these changes.