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A Collective Sigh of Relief in the Contracting World as IR35 Postponed

March 23, 2020

To lift pressure off already stressed businesses and contractors amid the ongoing impact of Coronavirus pandemic, on 18th March 2020, Steve Barclay, chief secretary to the Treasury, announced the decision to postpone IR35 changes until April 2021.  

It is fair to say the sense of relief has been almost palpable across the UK’s contracting workforce and the businesses it would have affected. This postponement means that those who hadn’t yet prepared for the new IR35 rules, including businesses and contractors, can relax for the time being.

What exactly is IR35 anyway?

The new IR35 rules will change how contractors and consultants providing services to businesses through intermediary companies, pay tax. 

HMRC are ensuring contractors, who for all intents and purposes are employees (known as “disguised employees”), are treated as such. In the eyes of HMRC, a “disguised employee” is a contract worker who fulfils a permanent position in a private or public sector organisation but does not pay the income tax and National Insurance contributions (NIC) that permanent employees normally would.  

In practical terms, contractors will no longer be able to realise the tax benefits of a limited company. In addition, workers providing services to public sector authorities, or medium and large-sized private sector organisations will no longer decide their own employment status, rather their client will determine this, based on several factors, including whether:

  • You provide your services through a limited company, partnership, or unincorporated association
  • Your client has the right to reject a substitute (i.e. someone you can send in your place to do your role)
  • Your client has the right to move you from the task you originally agreed to do, decide how the work is done, decide your working hours, and decide where you work
  • You are required to comply with your client’s employment policies

IR35 is unlikely to change how you do business if you provide services to a number of clients through a legitimate business entity, and you have control over your work. If, on the other hand, you only have one client, and operate from the same office location for regular working hours, you may be treated for tax purposes as an employee.

What is the impact of delaying IR35 to 2021?

While the postponement may be welcome news for some, including those who had not fully prepared, others who had may now need to reverse arrangements put in place. Medium and large businesses have been planning for months in readiness for the change, including engaging with contractors to agree new pay and tax arrangements. Some businesses will have made the decision to stop hiring contractors altogether, and many contractors have already switched to permanent roles or to new clients.

Final words

While we are currently in the midst of Coronavirus, it is expected that the government will seek to reintroduce IR35 in 2021. Clearly much will depend on the economic conditions post Covid-19, you can rest assured that will keep you up to date with any changes.

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