As the Government attempts to alleviate some of the pressure that Covid-19 is presenting, it was announced that the implementation of the change to the HMRC IR35 Regulations will be delayed from 6th April 2020 to 6th April 2021. There have been calls for the reforms to be scrapped completely but the Government communication was clear, the changes are still coming and this a postponement, not a cancellation. 

 

The change to the IR35 regulations already applies in the public sector but the extended rules will see all medium and large private sector businesses in the UK become responsible for setting the tax status of their contract workers from April 2021.  Any business that contracts with intermediaries for the provision of an individual's services will have to account for tax and national insurance through PAYE if the underlying relationship between the end user and the individual would be one of employment were it not for the intermediary.  However, the reforms will not impact the smallest businesses. This means that where a company satisfies two or more of the following requirements they will be deemed as a small business and be outside the scope of this reform:  

In essence, the changes to the IR35 rules will require the end user to determine the employment status of an individual supplied via an intermediary.  They will then have to communicate this determination and written reasons to the party that it directly contracts with and the individual themselves in the form of a Status Determination Statement. If the end user client determines that, but for the intermediary, the individual would be an 'employee' of the end user for tax purposes, the end user will need to account to HMRC for Income Tax and National Insurance contributions (both employer and employee) on any fees it pays to the intermediary (excluding VAT). At present, the responsibility lies with the intermediary, so this is a significant shift.  

Those businesses that were fully prepared for the reforms will be angry at the amount of time, money and effort that they have already put into preparing for the changes and understandably so.  In addition, some businesses may have already taken a more cautious approach and commenced the process of changing contractor’s employment status or ending relationships to accommodate the change.   

For those that weren’t fully prepared, this extension will give those businesses valuable extra time to ensure that they are compliant with the change in legislation. 

Regardless of this one year delay, our advice remains the same, if you are going to be impacted by the change of the IR35 legislation, you should continue to make plans during this extension period (or if you haven’t already done so, start planning) and take professional HR advice.