On Tuesday 17th March 20200, in a surprise announcement, the Government agreed to defer the changes to IR35 and the private sector for another year. This was as a result of the negative impact caused by the COVID-19 pandemic.
Perhaps the most important point to make is that the underlying principles of IR35 will remain unchanged. What is changing from April 2021 is who is responsible for determining whether an engagement is inside or outside of IR35.
Therefore if you are currently working in a role that is deemed to be outside of the IR35 legislation this should continue to be the case after April 2021.
According to the Stop The Off-Payroll Tax, the contracting sector campaign group against the IR35 Off-Payroll Tax roll-out, the decision was taken following “significant pressure” from campaigners and contractors.
It said that groups warned that the inevitable loss of work due to Covid-19 for those contractors deemed ‘inside IR35’ and effectively forced into ‘zero rights employment’ would prove”catastrophic”.
It added that though the Government has stated its intention to legislate in April 2021, contractors, clients and industry stakeholders will welcome the announcement so that greater consideration can be given to the “ill-considered measures”.
Dave Chaplin, director of the Stop The Off-Payroll Tax campaign and CEO of ContractorCalculator said: “We warmly welcome the announcement that the Government has seen sense and delayed the damaging IR35 Off-Payroll Tax roll-out for a year.
“With contractors and freelancers facing losing work with no sick pay, it was clearly the right and sensible thing to do.”
He added: “We must now keep pushing for changes to outlaw the disgrace of ‘zero rights employment’ and to make it illegal for firms to push employer’s taxation onto contractors.
“We must also push for the genuine review of IR35 legislation promised by the previous Chancellor, as part of the Conservatives planned review into self-employment.”
So what was supposed to be happening then?
Taken from our previous article IR35: Getting ready for off-payroll working changes
From 6 April 2020 the off-payroll working rules that have applied since 6 April 2017 where the end client is a public sector body were due to be extended to large and medium private sector organisations who engage workers providing their services through an intermediary, such as a personal service company.
There are tax and National Insurance advantages to working ‘off-payroll’ for both the engager and the worker. The typical off-payroll scenario is the worker providing his or her services through an intermediary, such as a personal service company. Providing services via an intermediary is only a problem where the worker would be an employee of the end client if the services were provided directly to that end client. In this situation, the IR35 off-payroll anti-avoidance rules apply and the intermediary (typically a personal service company) should work out the deemed payment arising under the IR35 rules and pay the associated tax and National Insurance over to HMRC.
Compliance with IR35 has always been a problem and it is difficult for HMRC to police. In an attempt to address this, responsibility for deciding whether the rules apply was moved up to the end client where this is a public sector body with effect from 6 April 2017. Where the relationship is such that the worker would be an employee if the services were supplied direct to the public sector body, the fee payer (either the public sector end client or a third party, such as an agency) must deduct tax and National Insurance from payments made to the intermediary.
These rules are to be extended from 6 April 2020 to apply where the end client is a large or medium-sized private sector organisation. This will apply if at least two of the following apply:
- turnover of more than 10.2 million;
- balance sheet total of more than £5.1 million;
- more than 50 employees.
Where the end client is ‘small’, the IR35 rules apply as now, with the intermediary remaining responsible for determining whether they apply and working out the deemed payment if they do.
Getting ready for the changes
To prepare for the changes, HMRC recommend that medium and large private sector companies should:
- look at their current workforce (including those engaged through agencies and intermediaries) to identify those individuals who are supplying their services through personal service companies;
- determine whether the off-payroll rules will apply for any contracts that extend beyond 6 April 2020 (HMRC’s Check Employment Status for Tax (CEST) tool can be used to determine a worker’s status);
- start talking to contractors about whether the off-payroll rules apply to their role; and
- put processes in place to determine if the off-payroll working rules will apply to future engagements. These may include assigning responsibility for making a determination and determining how payments will be made to contractors who fall within the off-payroll working rules.
Workers affected by the changes should also consider whether it is worth remaining ‘off-payroll’; providing their services as an employee may be less hassle all round.
If you have contracts that fall within IR35, We recommend using FreeAgent which can calculate deemed payments on a project by project basis.