The extension of the IR35 off-payroll working rules to large and medium-sized private sector businesses will be postponed until 6 April 2021, the UK government has announced.
The delay is part of a newly-announced package of additional measures to help businesses and individuals deal with the economic impact of the coronavirus, officially Covid-19, pandemic.
Treasury secretary Steve Barclay, announcing the change, said that the government "remains committed" to the reforms, which are designed to "ensure that people working like employees, but through their own limited company, pay broadly the same tax as individuals who are employed directly".
"This is a deferral, not a cancellation," he said.
Penny Simmons
Legal Director
There will be frustration that the announcement comes less than three weeks before implementation and after many businesses in the UK have spent significant amounts of time and resources preparing for the new regime.
Employment tax expert Penny Simmons of Pinsent Masons, the law firm behind Out-Law, anticipated a "mixed response" to the announcement from businesses.
"Given the current difficult situation in relation to Covid-19, the government's intention to try and help businesses and the self-employed alike in any way possible is understandable and to be applauded," she said.
"However while, on the one hand, there will be relief from contractors and those businesses who had yet to introduce compliance processes and procedures to deal with the new rules, on the other there will be frustration that the announcement comes less than three weeks before implementation and after many businesses in the UK have spent significant amounts of time and resources preparing for the new regime," she said.
"In its announcement, the government has been clear that this is a delay, not a cancelation, of the new regime, and that it remains committed to introducing the new rules. On this basis, the announcement will also likely lead to uncertainty regarding whether businesses continue to implement the changes that they have spent time introducing, or whether they delay completely until nearer the time. However, if different sectors and different businesses choose to react differently, the delay to the implementation may lead to more chaos than we would have seen if no delay had been announced," she said.
The IR35 rules require that employment taxes be paid by people who provide services to a business through an intermediary, usually a personal service company (PSC), if that person would otherwise have been regarded as an employee of the engaging business. Currently, where a private sector business engages a contractor through a PSC, liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC.
The change to the rules, which was due to take place on 6 April, will make large and medium-sized engaging businesses liable for determining whether the IR35 rules apply. This is already the position for public sector engagers. Engaging businesses will also be required to operate PAYE and pay employers' National Insurance contributions (NICs). Small businesses which engage contractors through PSCs are exempt from the change.
The government announced a number of concessions for businesses last month following a review, including a 'light touch' approach to penalties in the first year of operation and confirmation that the new rules would only apply to services carried out after 6 April, regardless of when paid for. It is not clear the extent to which these concessions will be carried forward to reflect the delay.
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