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Tax

IR35 changes delayed for year due to coronavirus

As the country struggles to deal with the impact of coronavirus, the government has announced that it will delay the contentious IR35 reforms by a year. Get the lowdown here.

The history of the government’s planned IR35 reforms is long, complicated and contentious.

For a full breakdown, see our dedicated IR35 page, but it essentially relates to how contractors who set themselves up as companies are treated for tax purposes.

The key point relates to who decides whether a contractor should be treated as an employee for tax purposes.

Currently, that responsibility lies with the contractor company, but the government plans to shift it to the company hiring the services of the contractor company.

For many contractors, this will mean they are classed as employees and have to pay more tax than in previous years.

The change was going to take effect from April 2020, but the coronavirus crisis has changed the timescale.

This article will cover the current situation with IR35 reforms, discuss who is affected, and share some expert insight.

How the IR35 situation has changed due to the coronavirus

Essentially, the only thing that’s changed is the implementation of the changes to the enforcement of IR35 has been pushed back by 12 months.

They are now expected to take effect from 6th April 2021.

Speaking in the House of Commons on 17th March, Stephen Barclay, the chief secretary to the Treasury, made clear that the reforms were being delayed by one year and not cancelled:

“The government is postponing the reforms to the off payroll working rules, IR35, from April 2020 to April 6, 2021.

“This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals.

“This is not a cancellation and the government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company pay broadly the same tax as those employed directly.”

Who is affected by the planned IR35 reforms

There is one key group that is exempt from the new reforms – small businesses.

Who counts as a small business is based on the Companies Act 2006.

To be classed as a small business, companies must tick two of the following three boxes:

  • An aggregate annual turnover of less than £10.2m
  • An aggregate balance sheet total of less than £6.1m
  • Fewer than 50 employees

For companies that meet this requirement, nothing is changing, contractor companies will still determine their own tax status.

Expert insight

Discussing the decision to postpone IR35 reforms, Seb Maley, CEO of IR35 specialists Qdos Contractor, stated:

“The Government has seen sense and made the right call in these unique circumstances. Given the economic challenges that lie ahead of the UK, now certainly would not have been the right time to roll out needless tax changes that endanger hundreds of thousands of contractors’ livelihoods.”

“That said, this is only a delay, albeit a very welcome one. It does, however, give private sector firms vital time to prepare for reform which can only be a good thing for contractors. What matters now is that businesses use this time wisely.”

Summary

  • IR35 reforms have been delayed for one year, but not cancelled
  • Small businesses are exempt from these changes
  • Companies and contractors need to start planning for how their working relationships may change from April 2021

Alec Hawley
Alec Hawley

Alec is Startups’ resident expert on mobiles, investment, and politics. Before joining, he worked in the media for over a decade, conducting media analysis at Kantar Media and YouGov, writing for computer games sites like Gaming Respawn and Gamespew, and taking on a wide variety of freelance roles.