IR35 changes delayed until April 2021
The government has announced that the IR35 tax reform will be pushed back by one year and will instead come into effect on 6 April 2021.
Off-payroll working (IR35) is being extended and will apply to large and medium sized businesses in the private sector. The new rules, which already apply in the public sector, will move the responsibility for operating off-payroll working from the contractor/ worker to the organisation, agency or third party engaging them. The new rules were supposed to take effect from 6 April 2020 with the aim of levelling the playing field between employed and self-employed workers and clamping down on tax avoidance.
Under the current rules, workers are often employed via a personal services company (PSC) and it is the PSC / contractor who is responsible for determining their employment status and ensuring the correct taxes are paid.
Under the new rules, the responsibility shifts to the organisation or agency employing the worker. Organisations will be responsible for determining whether workers should be classed as employed or self-employed and for deducting the correct taxes.
HMRC has released an online tool to help companies do this: Check Employment Status for Tax (CEST) tool.
The reform has been postponed to protect the economy from the coronavirus outbreak. However, it is only a delay and not a cancellation which means those in the private sector still need to begin planning for the change.
What is the impact of the delay?
For those that engage contractors, this delay provides welcome space to concentrate on the immediate operational needs around Covid-19 and the impact for the business and employees. However, the delay may also be helpful in presenting an opportunity for current contractual arrangements to be reviewed and where necessary amended.
Agencies supplying workers who may have been instructed to operate PAYE deductions from 6 April 2020 will no longer be required to do so. However, if processes have been set up it will be down to the agency to decide how best to continue.
Agencies and their clients should discuss any proposed changes to their arrangements in response to the postponement.
Many workers impacted by the proposed rule changes will have received Status Determination Statements (SDS) from the organisation they engage with directly or via an agency.
With this announcement there is no legislative requirement for the SDS to be acted on from 6 April 2020 and on the basis the engager is happy to engage with the worker on the same basis as before it should be possible to continue working for the private sector businesses without any PAYE deductions.
Contractors/workers will remain the decision makers in respect of determining if IR35 is in scope until April 2021 and any PAYE responsibility will continue to rest with them. However, many engagers have already reviewed the way they engage contractors/workers in preparation of the changes. They will have made commercial decisions which may continue to be implemented despite the postponement.