Planned changes in tax legislation which affects both businesses and individuals have been delayed as a result of the coronavirus pandemic.
The UK Government has announced that the revised IR35 rules will be delayed until April, next year (2021).
IR35 is a piece of legislation that allows HMRC to collect additional payment where a contractor is an employee in all but name. If a contractor is operating through an intermediary, such as a limited company, and, but for that intermediary, they would be an employee of their client, IR35 kicks in.
Following the reformed IR35 legislation, contractors who had previously not received pension contributions, holiday pay, sick pay, and parental leave, in return for a slightly higher salary, would be forced to pay the same tax and National Insurance contributions as full-time employees.
The Government has made it clear that the deferral is a response to the COVID-19 crisis, in order to help businesses and individuals, this is not a cancellation. Speaking from the House of Commons, Chief Secretary to the Treasury Steve Barclay said: “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.”
The purpose of the overhaul to the rules was due to non-compliance, which is due to cost the Exchequer over £1.3bn a year by 2023-24 if not addressed.
In order to tackle this issue, the key changes that were to be introduced from April 6 2020 were:
- A requirement for the employer to give a status determination statement, including reasons, as to the worker’s deemed employee status, before the start of the contract. This is a shift of responsibility from the worker to the employer;
- A requirement to implement a client-led disagreement process;
- A widening of the definition of “public authority” to catch companies connected with public authorities but that are not wholly owned by one or more public authorities.
The announcement to delay the changes to the IR35 rules has been welcomed by workers in the UK and it is thought that this can revive the troubled British high street. However, this move by the Government has been criticised as being too late, as many businesses have already taken steps to terminate their existing arrangement with contractors and enter into new arrangements.