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In an announcement delivered by Stephen Barclay MP on the evening of the 17th March 2020, the government announced a shocking delay to the off-payroll reforms. The announcement is a response to the coronavirus (COVID-19) pandemic currently sweeping the UK and has thus far been welcomed by industry bodies who have previously been lobbying for a delay to the reforms.
During the announcement, the government were insistent that the postponement is simply a deferral and that reforms to the off-payroll (IR35) legislation will still be going ahead as planned on 6th April 2021, rather than being implemented on the 6th April 2020.
“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 delay has been put in place to relieve the pressures to businesses and individuals during these uncertain times. However, with the news of the deferral being announced so soon before the planned reform date of the 6th April 2020, many businesses have already begun implementing their IR35 plans with some even having issued Status Determination Statements to contractors.
The announcement has been received positively by the contracting community. According to recent data, 84% of recruitment businesses surveyed earlier this week welcomed this move. It has also sparked much debate at what this means for contracting for the next 12 months.
Why was the IR35 delay announced?
The postponement is as a result of the government’s response to supporting businesses in the current COVID-19 crisis, rather than a change in government policy. The investment and resources spent on preparations to date will not be wasted and it is an opportunity for businesses to refine and continue their planning for the commencement on 6 April 2021.
What does the IR35 delay mean for contractors?
The deferral simply means that limited company directors working on contracts within the private sector will continue to have control over assessing the IR35 status of their contracts until the 6th April 2021.
What does the IR35 delay mean for end-hirers?
For end-hirers within the private sector, the delay means that they will not have the responsibility for assessing the IR35 status of contracts themselves until the 6th April 2021, nor will they have any legal obligation over IR35 status until then.
For any organisations who were still deciding on how they were going to approach the reforms, this delay will likely be well received for the additional twelve months of preparation.
Was the IR35 delay announced too late?
Many have raised concerns that this has come too late to have the desired effect. As the market adjusts to this news and the ongoing challenges presented by the COVID-19 crisis, it remains to be seen whether companies that have issued policy decisions to ban engaging with limited company contractors will reverse these decisions.
Our survey sent to our agency partners this week confirmed that 58% of agencies are unsure as to whether their end hirers will reverse these bans and 21% are confident that they will not.
What happens if my Status Determination Statement states the role is inside IR35?
Whilst the legislation that introduces the Status Determination Statement (SDS) has been pushed back until April 2021, it would be inadvisable to simply ignore an existing SDS. If the end hirer has assessed the role on an individual basis using reasonable care, it is not unreasonable to assume that this could be used by HMRC in the event of an investigation.
An SDS is not legally binding at this point, but it still gives an indication that the end hirer believes the engagement to be inside IR35. Simple ignoring this determination this is risky for you as an individual and potentially the rest of the supply chain.
What if I disagree with a Status Determination Statement?
Whilst the legislation that introduces the SDS has been pushed back to April 2021, it would be inadvisable to simply ignore an existing SDS. If the end hirer has assessed the role on an individual basis using reasonable care, it is not unreasonable to assume that this could be used by HMRC in the event of an investigation. Whilst it is true that the SDS is not legally binding at this point and is subject to challenge, it shows that the end hirer believes that this engagement is inside IR35. Simply disregarding this would be unwise for the contractor and potentially the rest of the supply chain.
This is not a suspension of the IR35 rules, it is a delay to the reforms. If your contractor disagrees with an existing SDS they should get their contract and working practices assessed by an expert, as they would under the existing rules, to ensure they are applying the legislation correctly.
At this time the entire supply chain must act responsibly. If the contract is indeed inside IR35 then it should be treated as such and this has not changed.
At the same time, those businesses who introduced blanket bans to deal with the reforms are strongly encouraged to revisit their policies and use the time to take a more measured approach. Engaging skilled limited company contractors is perfectly manageable and compliant for all parties with the right contracts and working practices in place.
Caroola has the expertise to support you with this. Our expert IR35 team and review service will help ensure you are operating compliantly.
Where contractors are in fact inside IR35, we encourage them to not take risks and operate a deemed payment or consider alternative arrangements like a compliant umbrella or PAYE option. When we asked businesses if they would allow contractors to be re-engaged via their own PSC, 68% confirmed that they would, with 21% undecided and only 11% stating that they would not.
There has been much discussion and debate in recent days about the risk to recruitment agencies posed by the Criminal Finance Act in circumstances where a contractor assessed as inside IR35 by the end hirer chooses to operate outside. This may be a legitimate concern in some circumstances; however, with the right processes in place, this risk can be managed.
What happens if my client hasn’t assessed the IR35 status of my contract yet?
If your client was yet to assess the IR35 status of your contract, then they now have no legal obligation to do so until the 6th April 2021. Therefore, the responsibility for IR35 compliance continues to sit with you.
I changed which structure I work under; can I go back to working through my limited company?
Really, it is up to you how to choose to structure yourself as a contractor. If it was your choice to change structure from working through a PSC (personal service company) to an umbrella employee or agency worker for example, then you can absolutely return to working as a limited company director if your limited company has been put into dormancy.
However, if it was a decision from your client that you had to work in a certain structure in order to continue with your contract, then it is up to your client to agree that they are happy to engage contractors working through PSCs. If this is the case, then it would be worth speaking with your client in the first instance.
I’ve made my limited company dormant following being told my contract would be assessed inside IR35, what should I do?
As above – if the decision to engage a contract under a certain structure was made by yourself, then you can take your company out of dormancy and begin working as a limited company director again. However, if the dormancy of your company was in response to a decision made by your client then speaking with them would be your first step in seeing that they are happy to engage a PSC for your contract.
What does the future hold for the flexible workforce?
In these unprecedented times, there is much uncertainty, however, one thing is clear; the UK needs its contingent workforce now more than ever and any move to make this easier for business is to be welcomed. We have our own robust contingency plans in place and remain confident in our ability to continue to deliver our services uninterrupted.
Support from Caroola
Whilst we hope that this is seen as welcome news for those working through your own limited company, we understand if you have questions relating to the IR35 status of your own contracts. Please get in touch with your accountant if you have any questions or would like any clarification.