Covid-19 causes delay to HMRC’s IR35

The tumultuous Covid-19 has caused a further delay to IR35 which will now be implemented on 6 April 2021. This news comes at a time of great uncertainty for both businesses and contractors with the goal of alleviating the administrative burden they will face in the coming months.

This delay came as part of a sweeping package of emergency measures announced by the Treasury in a bid to ease the pressures on the economy caused by the Covid-19 shutdowns.

What is IR35?

HMRC introduced IR35 in 1999. The intention was to prevent individuals working in a manner which was effectively the same as employees, but under the guise of limited companies. However, these self-employed individuals do not have to pay national insurance and were paying lower income tax.

Originally, the onus was on individuals to assess and then declare to HMRC that they fell under IR35. However, HMRC are now tightening the net on these selfemployed workers by shifting that onus to businesses to determine the status of their contractors.

HMRC claim that currently only 1 in 10 contractors, who should be paying these taxes are doing so and that these changes will bring in an additional £3.1bn in additional tax revenue between 2020 and 2024.

How has Covid-19 impacted IR35?

In the midst of the current global pandemic caused by the Coronavirus, the UK Government have delayed the implementation of their controversial IR35. It follows calls from members of the House of Lords last week which urged for IR35 to be postponed in light of the global pandemic.

Contractors have said that this brief reprieve has granted them temporary relief in times of great job uncertainty. Contractors however are aware that they will be the first overhead to be cut from businesses as they prepare to whether out the proverbial economic storm which is to come. This may drive many contractors to seek full employment within their companies to ensure job security moving forward.

The Director of policy at the Association of Independant Professionals and the Self-Employed has said:

“The Government has done the sensible thing by delaying the changes to IR35 in the private sector. It is right and responsible to delay the changes to IR35 for at least a year during the coronavirus crisis, to reduce the strain and income loss for self-employed businesses.”

Andy Chamberlain, director of policy at IPSE

This news may come too late for some contractors, as many large companies have already made blanket determinations about their contractors tax status or taken this opportunity to thin out their workforces.

What does this mean for businesses?

This delay presents a unique opportunity for both employers and contractors to develop their understanding of the changes IR35 will have and assess its possible impact, in order to make considered decisions about how to best prepare.

It has been reiterated by the Chief Secretary to the Treasury that:

“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 remain committed to reintroducing this policy to ensure that people who are working like employees, but through their own limited company, pay broadly the same tax as those employed directly.”

-Steve Barclay

Given the current economic status of the UK, it is clear that now certainly would not have been the best time to roll out tax changes which will impact hundreds of thousands of contractors’ jobs. However, as Steve Barclay has stated, “this is a deferral, not a cancellation”, therefore what matters now is that businesses use this time wisely to prepare for IR35 in April 2021.

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