Amidst the coronavirus outbreak, the UK government has announced that it is delaying the introduction of new IR35 tax rules in the private sector by one year as part of efforts to protect the economy.
Speaking at Tuesday’s Budget debate in the House of Commons, chief secretary to the Treasury Steve Barclay announced the reforms to IR35 rules would now come into force on 6 April 2021.
This was part of the announcement of a £330bn financial package designed to lessen the impact of coronavirus on the economy.
IR35 is legislation that affects organisations that employ contractors. Under new proposed rules, contractors working for medium or large private businesses would pay the same tax and national insurance as full-time workers with businesses having to prove that they are not performing the same role as a full-time employee.
The rules are designed to crack down on individuals that may be avoiding paying income tax, but critics say such workers do not receive the same benefits as full-time employees and it could deter businesses from hiring such workers. According to research by Harvey Nash, the new rules could see up to 20% of UK businesses stop using contractors.
The rules were due to come into force next month, confirmed as part of the 2020 Budget.
IR35 postponed: News is welcomed
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Chris Biggs, managing director at Theta Financial Reporting said:
“This postponement is welcomed and will give some respite to thousands of consultants and freelance professional service workers in regards to their own tax situation, but the COVID-19 crisis is causing significant stresses in short terms for self-employed workers. Furthermore, it may be worth asking how many businesses will reverse the considerable efforts they have made to become IR35 compliant to account for this postponement.
“With daily updates from the government, there needs to be greater transparency from businesses and HMRC to ensure every skilled gig economy worker has a backup in place if they are unwell. Companies need to ensure that do not act rashly and protect their employed and contracted workforce to make sure that the professional services sector does not grind to a halt and we lose thousands of fantastic consultants over the course of the next quarter.”