IR35 private sector reforms delayed until 2021

The government has announced a one year delay to controversial changes to the off payroll working rules, due to be enacted next month, amid concerns about their potential impact during the coronavirus pandemic, reports Pat Sweet

In an announcement at the end of the parliamentary debate on the Budget speech, Steve Barclay, chief secretary to the Treasury, said: ‘The government is postponing the reforms to the off roll payroll working rules - IR35 - from April 2020 to 6 April 2021.

‘This is a deferral in response to the ongoing spread of coronavirus to help businesses and individuals affected. 

‘This is a deferral, not a cancellation.  The government remains committed to re-introducing this policy  reforms to ensure that people working like employees but through their own limited company pay broadly the same tax as those employed directly.’

At Budget 2020 last week the Chancellor confirmed that the extension of IR35 reforms to the private sector would go ahead as planned.  The latest announcement means the Finance Bill legislation will be amended to show the new start date of 6 April 2021, and fresh legislation will be brought then.

The reforms, which pass responsibility for determining a contractor’s status from the individual to the organisation which employs their services, were first rolled out in the public sector in 2017. Their extension to the private sector has proved hugely controversial, with claims that the rules are too complex and that HMRC’s online tool check employment status for tax (CEST) used to determine whether or not they apply is flawed.

The House of Lords economic affairs finance bill sub-committee announced at the beginning of February that it had begun an inquiry focused on the proposal to extend the off-payroll working rules.

Andy Chamberlain, director of policy at IPSE (the Association of Independent Professionals and the Self-Employed) described the government’s decision to delay as ‘sensible’.

'These changes have already undermined the incomes of many self-employed businesses across the UK. However, they would have done even more serious damage if they had gone ahead as planned.

'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.

‘This is a sensible step to limit the damage to self-employed businesses in this grave and unprecedented situation, but we also urge the government to do more. It must create an emergency income protection fund to keep the UK’s crucial self-employed businesses afloat.’

James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk, said: ‘I do welcome this pause - it means that contractors can now switch gears and put all of their energy into the wider challenges we'll all going to face in the coming months.

‘Whilst the wider economy is due to enter a turbulent period, it's clear by the scale of the £330bn financial measures made available by the Treasury today that the government wishes to keep the economic engine running as much as they can. We hope these two factors combined have an impact on the contracting market.

‘This will also give time for the Lords review to be published, and we hope that the Treasury and HMRC listen to their recommendations before attempting to re-table this legislation for April 2021.’

Separately, in response to a freedom of information request HMRC has published details of its project carried out last year to enhance CEST, by making the questions clearer and easier to understand and included additional questions so CEST is able to consider more detailed information provided by the user.

The background information shows stakeholders’ principle concerns centred on the lack of mention of mutuality of obligation in the online assessment, the inability to make multiple uploads, and the complexity of some screens.

HMRC said its early work on the enhancements showed some usability and accessibility issues to be resolved.

Following the enhancements, HMRC said the CEST completion rate has increased by 9% to 88%, indicating customers find the wording of questions easier to understand, making results more reliable.

There was a 32% increase in digital traffic in the period 25 November 2019 to 31 January 2020. CEST has provided a determination in 80% of uses over that timeframe. An individual user may produce more than one determination in one session.

HMRC Policy paper: Rules for off-payroll working from April 2021, issued 3 Apr 2020 – delayed due to covid-19 pandemic

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