The Reality: HM Treasury, Covid-19 and IR35

As part of a co-ordinated response to Covid-19, part of the action by the Government to support businesses and individuals has been to delay by 12 months the reforms to off-payroll working rules – i.e., IR35. 

The rules, which ensure two people sitting side by side doing the same work for the same employer are taxed in the same way, will now come into effect on 6 April 2021 instead of 6 April this year (taken from Gov.uk website).

We have seen mixed responses to this news:

• Contractors jumping up and down with glee where an inside IR35 determination has already been made.  
• Smaller companies breathing a sigh of relief, as they had not quite managed to get all their IR35 determination procedures in place.
• Larger corporates standing firm on determinations and bursting contractors' bubbles, as they know that it is only the liability which is not moving, not the actual working situation.  In effect, what can seem like a harsh standpoint on this is actually protecting the contractors from "misdeterminations" and then not paying correct tax.  Most large corporates where IR35 determinations have already been made are not allowing contract "roll-backs".

Please find below an example of the emails we are receiving from corporate clients:

Start of example email

In response to the recent announcement from the HMRC that the IR35 changes have been delayed in terms of implementation until April 6th 2021, XXX confirms the following:

The XXX policy remains largely unchanged given that the legislation is only delayed.

1) We will engage new contractors through the PAYE route (PSCs will only be engaged when there is a determination made that the role falls outside IR35)

2) Those who have already signed up to PAYE contracts are to remain on those new contracts at the agreed rates.  There will be no 'roll-back' to PSC status. 

3) Those who have not yet moved, but have agreed to move to PAYE, are to move on the agreed date at the agreed rate. There will be no 'roll-back' to PSC status.

4) Those who have not yet agreed to a new PAYE contract are to move to a new PAYE contract in line with previous IR35 determinations. 

End of example email

The good news of this delay, though, is as follows:

• Companies can engage contractors quickly without worrying about determination.  This can help businesses increase IT staff with contractors to move business processes online and go digital to help with current needs.
• Smaller companies who have been wary of employing contractors and getting the determination wrong can lose that fear and engage them now.
• Larger companies can divert staff used in the determination to assist in other areas of their business. 

So whilst this may not keep all contractors jumping up and down with glee, it might mean a few more get hired during this difficult period.

Click here to read what HMRC actually published about this on 18 March 2020.