In a largely unexpected turn of events, the Government has announced that IR35 reforms in the private sector will be deferred for 12 months. The new rules would have meant every medium and large private sector business in the UK became responsible for setting the tax status of any contract worker they use from April 2020.
Despite the Chancellor’s Budget confirming that the measures would be implemented from 6 April 2020, the ongoing Coronavirus crisis has led to a last minute deferral of the new regulations until April 2021. It follows calls from members of the House of Lords earlier this month which urged for the IR35 tax rules to be postponed in light of the Coronavirus fallout and its economic impact
“This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals,” announced Chief Secretary to the Treasury, Steve Barclay MP to the House of Commons.
“This is a deferral and 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 broadly the same amount of tax as those employed directly.”
Too little, too late
Though welcomed by businesses and professional advisers, such as ourselves, who support contractors, for many the announcement is too little, too late; a lot of larger organisations have already cut ties with all limited company contractors, often wrongly deeming them inside the rules and not wanting to take the chance of being penalised for concluding otherwise.
A lot of these contractors are now being taxed as employees without the security and many of the employment rights enjoyed by permanently employed members of staff.
A chance to reform
Although the government has made clear this is a delay to the new rules and not a cancellation, contractors, clients and industry stakeholders will look to utilise the time now granted. The announcement presents an opportunity for further lobbying of government on the significant issues that will be caused by these new rules, before they are implemented.
How can George Hay help?
We will continue to monitor any further developments with interest and report on these as appropriate.
If you are concerned about the consequences that the deferral may have for you and your business, or you need advice on how you can prepare ahead of April 2021, contact our team of professionals today.
We can discuss your circumstances in more detail with you and assist you with tax planning, should this be necessary.