IR35 faces Coronavirus delay

2020 will go down in the history books as the year of Coronavirus. The virus which has claimed tens of thousands of lives (so far) has literally ground people, societies and businesses to a halt. This unprecedented situation has left our streets empty, our schools shut and our economies reeling. As companies grapple with the reality of empty offices, unpaid bills and severed contracts, business leaders are contemplating drastic changes to their working practices. One pressing issue is how to tackle the suspension of controversial tax reforms known as IR35 that were due to come into effect in April 2020.

The proposed reforms have been delayed for the private sector until 2021. The decision was announced on March 17th in the House of Commons, along with an emergency £330bn financial package to bolster the UK economy.

“The government is postponing the reforms to the off-payroll working rules, IR35, from 6 April 2020 to 6 April 2021…in response to the ongoing spread of COVID-19 to help businesses and individuals”, said Chief Secretary to the Treasury Steve Barclay.

IR35 was originally introduced in 2000 to ensure that those working as employees but paid via a Personal Services Company (PSC) would be subject to similar levels of tax as other employees.

The impact of this deferral could hit many businesses who have spent months preparing for the changes by tightening up their hiring practices. Many corporations, including Lloyds, GSK, HSBC and Deutsche Bank imposed a blanket ban on PSCs rather than risking financial and legal liability as IR35 loomed. The delay comes too late for them. They have stopped engaging contractors altogether, but are now faced with an opportunity to re-evaluate their position and potentially return to contractors – little consolation for the thousands of freelancers and sole traders who have already closed their doors as result of the decision.

Many sole traders and contractors who awaited IR35 anxiously, fearing it would undermine their income, have welcomed the delay. They believe the damage would have been even more serious if the proposed changes had gone ahead as planned. The decision to postpone the changes to IR35 for at least a year has brought relief to many with the unexpected prospect of reducing the income loss that has blighted a large proportion of self-employed businesses as a result of the pandemic. We spoke to IR35 specialist Rebecca Seeley Harris last month to explore the impact of the legislation.

So what does this ‘interim’ year hold for employers and contractors? An estimated 20,000 recruitment agencies and other intermediaries who supply staff through PSCs will be putting their IR35 plans on the backburner whilst they tend to more pressing survival strategies. Contractors, sole traders and freelancers are using their enforced ‘down-time’ to contemplate their future employment status and categorisation.

The future is hazy in these strange, unsettling times and the impact of the delay on businesses and contractors is unclear. What we do know is that the government intends to ‘lock-in’ the IR35 changes a year in advance, which will happen as soon as they update the IR35 guidance.

Announcements from the government are imminent and everyone in the business world is watching and hoping for positive tidings.