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IR35: Don’t brush it under the carpet
Rewind 3 months ago to what feels now like the edge of the precipice. A nationwide lockdown was enforced to fight the spread of Covid-19 and the Government announced a whole raft of measures to protect the economy and help UK businesses and individuals through the crisis.
Among these was the decision to delay the reforms to the IR35 off-payroll rules by a year, meaning that key changes to the IR35 legislation wouldn’t go ahead from 6th April 2020, but instead be deferred until 6th April 2021.
Businesses and workers in contractor supply chains gave a collective sigh of relief, with the pandemic giving them quite enough to contend with.
Now, as the country and economy starts to get back on its feet, it’s time to brush off IR35 strategies, rather than brush them under the carpet.
Further delay to IR35 looks unlikely
At the end of April, the House of Lords Finance Bill Sub-Committee published a damning report into the reforms, entitled “Off-payroll working: treating people fairly”. It concluded that the rules were “riddled with problems, unfairnesses and unintended consequences.”
Further to this, a group of backbench MPs, lead by Tory MP David Davis, tabled an amendment to try and get the reforms delayed until 2023-24, but this came to nothing, as the Labour party declined to vote on the amendment.
So, despite resistance, the Government seems determined to press ahead. Increasing tax receipts will be a priority as they try to claw back the hugely depleted public purse caused by coronavirus. This makes any further delay (or even a rethink) of IR35 highly unlikely.
As things stand, the changes will go ahead from 6th April 2021, and there is unlikely to be any soft-landing. That’s just 10 months away, so it is important that hirers, agencies and contractors should prepare for that date.
Putting IR35 back on the table
Contractors who work through their own limited companies (aka. Personal Service Companies or PSCs) will carry on assessing their own IR35 status until April 6th 2021. In other words they decide for themselves whether their contract and working practices reflect an employed, or self-employed relationship, and tax themselves accordingly.
When the IR35 off-payroll reforms are rolled out next year, medium and large private sector companies will be responsible for determining IR35 status, and the liability that currently sits with the contractor will be shifted to the party paying them, which could be the client, recruitment agency or umbrella company.
The truth about “blanket bans”
It is true that there is a provision in the draft legislation which requires the hirers to take “Reasonable Care” in determining IR35 status. On the face of it, this was designed to prevent companies making a blanket decision to put all contractors inside IR35.
However, in reality, hirers can simply say they are not going to use limited company contractors at all – making it a commercial decision, not a blanket IR35 decision.
Indeed we saw this in the run up to the original implementation date of 6th April 2020, with the likes of Barclays and HSBC announcing they would only engage contractors on a PAYE basis.
This would suggest that the way forward in easing disruption is to find and evaluate compliant ways to engage PSC contractors who are either caught by IR35, or impacted by a blanket ban on limited contractors.
Let’s talk
The delay to IR35 has given valuable breathing room to get solutions in place ahead of April 2021.
With relatively few reputable IR35 providers to go around, at Liquid Friday we’ll be ensuring that we have the capacity to consult with agencies, meet with client and contractor groups, and hold webinars – whatever is needed as awareness gathers momentum.
Talk to your Liquid Friday Account Manager, and make sure you follow us on LinkedIn for important updates.