IR35 Delayed until April 2021: What does this mean for contractors?
Just one week ago Rishi Sunak delivered his first budget. It was something of an emergency budget with a significant number of provisions related to COVID-19. Hidden in the supporting Budget documents there was a single paragraph confirming that the private section IR35 reforms would be going ahead as planned.
Fast forward a week and everything has changed! Suddenly last night, and unexpectedly for almost everyone in the industry, the IR35 changes were postponed for an entire year (watch the full announcement here). It was a huge surprise for everyone at this 11th hour but it is, of course, very welcome news for the whole contracting industry. Increased tax burdens and increased administration would not have been welcome in these challenges times.
It doesn’t, of course, mean that IR35 has gone away forever, but it does give stakeholders a whole extra year to petition the Government, if they so wished, to amend the reforms.
What does this mean for contractors who are currently on-site?
We would strongly recommend you talk to your recruitment agency and / or client as soon as possible about these changes.
Responsibilities and Determinations
The most important thing to bear in mind is that, if a contract has been deemed inside of IR35 as part of their status determination process then it remains inside of IR35. The difference is that, now this postponement has been announced, the obligation to determine the IR35 status of your contract will remain with you, as will the responsibility to make any appropriate deductions and submissions. It’s important to consider that although the risk of an incorrect determination continues to be your responsibility there is now an added complication. Where clients and candidates were working to prepare for the April changes, there may now be a piece of paper determining that your role lies within IR35.
Proof of Deductions
If you were planning to move to an umbrella company to process your payroll you may no longer wish to do this. For existing contracts this may not be possible, or the client and/or recruitment agency may require proof of deductions. Due to the Criminal Finance Act, if a client or recruitment agency knowingly allows a contractor to avoid PAYE taxes by ignoring an “inside” determination they are putting themselves at risk of a corporate offence.
For contractors where an inside SDS (Status Determination Statement) has already been issued we suggest talking to your recruitment agency or the client regarding this.
HMRC had previously said that they would not be using new inside IR35 determinations as a reason to look back on historical taxes. Hopefully that will continue to be the case. HMRC, however, has many things to balance at the moment including a significant deficit whilst not penalising self-employed workers when they’re already under financial pressures. This delay means that penalties for any incorrectly applied taxes return to the contractor, but there is a risk for clients and recruitment agencies for anyone who has already been issued a SDS.
There is a chance that clients will want to talk to their contractors about these changes, and any adjustments that had been made to their contracts ahead of the original go-live date. There may be discussions regarding rates and contractors may no longer be switching onto FTC models etc.
Just to reiterate – a contract with an inside SDS is still within IR35 irrespective of this delay, it’s just that the contractor should be making the deductions themselves.
As things stand the IR35 changes aren’t going away completely, but who knows what things will look like in six months’ time. As has been the case throughout the IR35 changes process, communication between clients, contractor and recruitment agency is going to be key. We will be working closely with all of our contractors and clients to help guide them through this latest change in legislation.
In the current financial market we expect to see a significant increase in contract roles becoming available and contractors re-entering the market, which is good news for both contractors and clients. This is not the last we have heard of the private sector IR35 changes but we can expect it to go quiet for 6 months or so whilst other issues take priority.
As we have done throughout this process we will continue to keep you updated regarding any changes that may come, including the new implementation date.