Contractors, recruiters and end-hirers alike are getting ready for the imminent private sector reform to IR35. Changes were due to come into force in April 2020 but were delayed for 12 months because of the first wave of the Coronavirus pandemic.
This has had people questioning, could reform to IR35 be delayed for a second time? Although another delay is extremely unlikely, due to the legislation having been passed, we explore why some people think IR35 could be delayed again, why we believe this will not happen and what steps you need to take to make sure you’re ready for the reform.
What are the changes to IR35?
Firstly, let’s start with what IR35 is and what are the changes. IR35 is a piece of anti-tax-avoidance legislation that was introduced in April 2000 and was aimed to tackle ‘disguised employment’. This is where an individual is - for all intents and purposes - an employee of an organisation, but is taxed as if they were self-employed. If they are found to be in disguised employment, then they are inside IR35, so will have to pay tax that is in line with PAYE employees.
Reform to IR35 legislation is due to come into effect in April 2021 for the private sector, and will more or less mirror the changes that took place in the public sector in April 2017. These reforms mean that the responsibility of determining the IR35 status of an assignment is now with the end-hirer - not the contractor (where the end hirer is a medium or large organisation).
These changes have led to knee-jerk reactions in the past. In the public sector, some end hirers have issued blanket determinations for their contractors IR35 status. This has led to some contractors having inaccurate IR35 determinations thrust upon them and leaves them feeling due process hasn’t been taken when deciding their IR35 status. Whilst the reforms will include a requirement to take reasonable care and HMRC have been clear that blanket determinations will not be compliant, many contractors still have concerns.
IR35 delay: the sequel?
A very unlikely possibility. Industry leaders, Parasol included, overwhelmingly expect the reform to go ahead in April 2021. A tiny cohort of people have argued that the government has changed their minds on numerous occasions on various policies, for example, the extension of the furlough scheme, free school meals and exam results in England, therefore, why will IR35 reform be any different.
Another reason a small percentage of people think IR35 could be postponed again is that the country is facing similar challenges to when the reform was initially delayed in 2020. We’re still in the midst of a global pandemic and in the deepest recession since The Great Frost in 1709. If it was right to delay the reform of the legislation in 2020, is this still not the case now?
In theory, when would the delay be announced?
If a further delay were to take place, then an announcement is likely to be imminent. In 2020, chief treasury secretary Steve Barclay announced the first postponing IR35 on 17th March. This was heavily criticised at the time as being too late, so if the government were to announce a further IR35 delay, then we would have expected it to have been announced by now.
Industry leaders like IPSE are campaigning against the legislation through the hashtag #StopIR35, but the truth of the matter is that it is extremely unlikely to have any impact. The government have repeatedly confirmed their intentions to press ahead with the reforms. In a recent LinkedIn poll Parasol conducted, when asked will IR35 be delayed for a second time, 79% of respondents felt there would not be a second delay to IR35.
This legislation has been mooted for over a decade now and the desire from central government to have IR35 in line with the public sector legislation is palpable. The Finance Act 2020 (which includes IR35 private sector reform) achieved royal assent in July last year. This means that it is now law and reforms to the legislation will go live in April 2021.
Clarke Bowles, Head of Key Accounts at Parasol, said he expected the IR35 reforms to go ahead:
The Private Sector Off-Payroll working rules will take effect from 6th April 2021. Whilst I would welcome any possibility of a further delay or ideally a complete halt, so that a full and proper review could be conducted. Now is not the time for false hope, now is the time to prepare.
Coming full circle
So, will IR35 be delayed a second time? In all honesty, it is very unlikely. The law has already received royal assent and there is no political will to delay this legislation any further.
Our advice for contractors, recruiters and end-hirers would be if you’re not ready, get ready. Reform to IR35 will have a seismic change for the industry, so don’t wait and see how it pans out. With our help, we will make sure you can pivot and adapt so you are ready to make the most out of the reform.
With you all the way
Parasol employees can seamlessly switch between umbrella employment, to working through a limited company with our sister company ClearSky Contractor Accounting, depending on the assignment. To find out more, or to talk through a whole host of other solutions, please contact us.