IR35 reforms set for 2021 despite damning report

IR35 reforms set for 2021 despite damning report

Despite criticism, the introduction of the off-payroll working rules into the private sector looks set to happen in April 2021. The rules move the responsibility for assessing the tax status of contractors, providing services through an intermediary personal services company from the contractor to the end client. If the individual is deemed an employee, the end client must deduct tax and National Insurance from the payments for the services. This will bring the private sector in line with the public sector where these rules have been in place since April 2017.

As the April 2020 original implementation date loomed, many contractors were frustrated by what they saw as their clients’ risk-adverse approach to the changes. It was reported that companies were making blanket decisions about their contractors’ tax status and erring on the side of caution by treating them as deemed employees. As we reported in April, part of the Government’s coronavirus response package was to delay the implementation of the changes until April 2021.

A report published in late April 2020 by a sub-committee of the House of Lords Economic Affairs Committee, Off-payroll working, treating people fairly, echoes many of the concerns raised by describing contractors as at risk of becoming ‘zero rights employees’ with the tax burden of an employee but without the benefit of employment rights. It describes the IR35 system as ‘flawed’ and concludes that making businesses enforce the regime amounted to the privatisation of tax compliance.   

The sub-committee suggested a further delay, pointing out that by April 2021 the economy would still be dealing with the effects of the pandemic. Instead the time could be used to find a fairer alternative. Despite this report, the reforms are included in the Finance Bill 2020 with an implementation date of 6 April 2021.

However, there may be some developments as the Government intends to carry out research into the long-term effects of the reforms in the public sector. The outcome of this research should be made available before the changes in April 2021. It is still sensible to prepare for the reforms and we can help you get your business ready.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.