It only took a worldwide pandemic, but the government agreed on the 17 March 2020 to delay the forthcoming changes to IR35.
The IR35 legislation was going to change in April 2020 so that medium and large organisations would become responsible for determining whether IR35 applied to the contractors they used (i.e. whether the contractors worked like employees rather than self-employed individuals).
Amending the legislation in this way was leading to a significant shift towards more workers being engaged on a PAYE basis. This may not sound like a bad thing, but it places a significant financial and employment rights burden on organisations and typically reduces the worker’s take home pay considerably. The government was prepared to take this unpopular step in a bid to increase government revenues until the Coronavirus took hold and its devastating economic implications began to unfold.
On Monday 16 March, the House of Lords called for the legislation to be delayed and Lord Forsyth of Drumlean commented:
‘I wondered whether HMRC had considered, given the enormous financial impact which we are about to experience as a result of Coronavirus, whether it might not be sensible for you to defer introducing these changes at least for six months if not a year.
What is being proposed in the Budget I think is generally acknowledged to be inadequate in terms of the scale of the crisis and it does seem rather perverse to add an additional burden of this kind on business which could easily be deferred for six or 12 months.’
His message was clear: self-employed contractors and organisations were on the cusp of experiencing an unprecedented financial and economic crisis and now cannot be the time to introduce measures which will further exacerbate this.
On the 17 March, Rishi Sunak, Chancellor of the Exchequer, confirmed that the IR35 legislation would be delayed until April 2021 to reduce the financial burden and job losses that would have followed, had the legislation been enacted this year.
For some, the hope is that the government will take this time to carefully reconsider the legislation, although Chief Secretary to the Treasury, Steve Barclay, reiterated that the measure was a deferral only, not a cancellation and that the government remained committed to reinforcing the policy.
The only downside of this change of stance over when the legislation will come into force is that the reprieve came very close to April 2020 when the legislation was due to take effect, meaning that many organisations had already implemented the new IR35 strategy for 2020 and put contractors on PAYE. It has become evident that, for now, some organisations are still unwilling to use contractors even though the legislation has been delayed, purely because they have already spent a great deal of time and money getting their procedures in place.
This news was a welcome relief however to most contractors and organisations throughout the supply chain as attention can remain on protecting companies and individuals from the economic fallout from Covid-19 rather than spending time and using resources worrying about a piece of legislation that is, frankly, not a priority right now.
In these uncertain times, this delay ironically provides contractors with more job security than if they were all forced onto PAYE, as it is means that clients may be more inclined to use contractors over the coming months to retain flexibility over the workforce and ensure they have access to the right people at the right time.
|Authored by Kye Burchmore, ‘Off-Payroll Tax Handbook’ will publish in May 2020. For more information, please visit our website.|