Government delays planned IR35 reforms until April 2021

Image credit: The Times

Chief treasury secretary Steve Barclay has announced that to help ease the impact of Covid-19 (Coronavirus) on UK business, planned reforms to the off-payroll rules, known as IR35, would be pushed back by one year, despite being confirmed in the Budget 2020 on 11 March.

Speaking on 16 March at a Finance Bill sub-committee in the House of Commons, Barclay confirmed that the changes will instead come into effect on 6 April 2021. 

He said: “This is a deferral in response to the ongoing spread of [Coronavirus] to help businesses and individuals. The government remains committed to reducing this policy to ensure people working like employees but through their own limited company pay the same tax as those directly” 

Stephen Ratcliffe, partner at Baker McKenzie, said: “This is a startling announcement by the government, coming after repeated statements that these reforms would not be postponed. With only a little over two weeks before they are due to take effect, clients of personal service [businesses] can pause their preparations, albeit only temporarily, and focus their attention on more pressing matters.”

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David Greenhalgh, partner at Joelson, added: “From the outset, IR35 has been mired in controversy because there is a considerable lack of clarity in both the original legislation and HMRC’s guidelines. Indeed, even HMRC’s own Check Employment Status for Tax (Cest) tool is widely viewed as unfit for purpose and inaccurate, with businesses using the tool reporting they have received indications that IR35 would not apply when it clearly would have.

“The significant economic and social impact of the [Coronavirus] crisis has allowed the government to save face by u-turning on a legislative change that was ill-conceived and rushed through. With this delay, businesses and individuals contracting through an intermediary must take time to familiarise themselves with exactly what is expected of them, when IR35 is eventually introduced to the private sector.”