Use IR35 delay to prepare, say experts

The Government announced late on 17th March that IR35’s expansion into the private sector will be postponed until 6th April 2021 due to the Coronavirus crisis. Chief secretary to the Treasury, Steve Barclay, tempered the announcement by stressing that the reforms are being deferred, not cancelled, adding that the Government “remains committed to reintroducing this policy to ensure people working like employees but through their own limited company pay broadly the same tax as those employed directly”.

Seb Maley, the IR35 specialist and CEO of Qdos Contractor, echoed Mr Barclay’s caveat, saying that, while contractors and businesses will be relieved by the postponement, they should use the extra time wisely: “…it seems likely that changes will be introduced next year … the extra time afforded does give… more time to prepare and successfully implement the changes.”

ReLegal Consulting founder and IR35 expert Rebecca Seeley Harris agreed, saying: “The government have made it clear that this is a deferral not a cancellation, so it is important that businesses keep it in mind at the appropriate time, and now focus their efforts and whatever is needed to deal with COVID-19.”

Larsen Howie’s head of tax, Andy Vessey, suggested that the fact the reform is being delayed for 12 months will mean that UK chancellor Rishi Sunak’s assurance of a year-long “soft landing” will be removed come April 2021: “They will need to recoup as much tax revenue as possible to repair the huge dent in HMT’s coffers caused by COVID-19. In other words, the [contractor] market has 12 months to get this right.”

One ex-tax officer went further, describing the delay as “a 12-month stay of execution”, and suggested that it’s unlikely companies will now go back to engaging contractors determined to have been working like employees.

This warning was reiterated by Mr Vessey, who said that HMRC may target those with ‘inside-IR35’ determinations over the next year, while a freelance software consultant took to LinkedIn to urge caution: “What do people think will happen, when they work on a contract for a company that already stated it is ‘inside IR35’? Do they really think HMRC is that dumb? They will move up the list of investigations very quickly.”

Overall, the Government’s decision was widely praised by experts in light of the ongoing pandemic. CEO of inniAccounts, James Poyser said he welcomed the pause, commenting: “The Lords made it pretty clear in their committee hearing that the Treasury’s IR35 position was increasingly untenable, with rising backdrop of Coronavirus.”

IPSE’s director of policy, Andy Chamberlain, concurred, and called on UK chancellor Rishi Sunak to “create an emergency Income Protection Fund to keep the UK’s crucial self-employed businesses afloat.”

The chancellor used a press conference last night to unveil a set of financial measures to support the UK economy through the pandemic, including £330bn in loans to help businesses pay for supplies, rent and salaries – equivalent to 15% of GDP – alongside an extended business rates relief.

However, shadow chancellor John McDonnell urged the Government to increase statutory sick pay and offer support to those losing their jobs.

Mr Sunak said that more measures will be announced in the “coming days”, saying: “Never in peacetime have we faced an economic fight like this one”.

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