IR35 Delayed to 2021: What It Means for Business

We previously wrote an article on the IR35 reform, explaining what the change in legislation means for limited company contractors, how your employment status is determined, and how to prepare for the new rules. However, the rollout of the IR35 reform to the private sector has been delayed to April 2021 as part of wider measures to safeguard the UK economy against the Covid-19 pandemic.

Due to be rolled out to the private sector on April 6th, this eleventh-hour U-turn has left the contracting community – across all points of the supply chain – both jubilant and astonished in equal measure. The latest iteration of the off-payroll rules has been in effect in the public sector since 2017 and was confirmed to go ahead in the private sector in the Budget 2020 document released on March 11th.

So, what now for contractors, recruiters, and clients concerning IR35? The bottom line is that you should continue to prepare and view the extra year as an opportunity to refine your plans.

The IR35 reform has been delayed, not cancelled

This delay to the IR35 reform will no doubt fetch a communal sigh of relief from the contracting industry and is ultimately the correct move from the government amidst the far more pressing concern of Covid-19. It’ll also reduce pressure on the self-employed who are concerned about what the outbreak will mean for their projects, which can only be a positive.

However, Matt Tyler, IR35 Consultancy Manager at Larsen Howie, urges those affected by the legislation to stay proactive when it comes to getting ready for the reform:

“What this means for contractors in general is that after 6th April your liability is no longer going to shift to the end client. If you have a contract that is going to extend past 6th April that you were leaving to your end client to deal with, I would give some serious thought as to its standing from an IR35 perspective, as there is now an extra year of liability you will need to concern yourself with.

"For agencies/end clients – do not rest on your laurels. We’ve all had a taste of what the changes will bring, so take this year as time to set up a proper process to allow contractors to be assessed fairly on their IR35 status with plenty of time in the run-up to April 2021. The very last thing you want to do is to sit back and end up putting in place last-minute measures this time next year!”

Prepare for more stringent IR35 compliance measures

Andy Vessey, Head of Tax at Larsen Howie – and previously an HMRC tax investigator for a number of years - also warns that HMRC may clamp down on compliance over the next year regardless:

“We may well see HMRC IR35 compliance activity ramped up in 2020/21 because of the fact that anticipated PAYE & NIC receipts arising out of the operation of the off-payroll rules will need to be recovered elsewhere. End clients and recruiters should certainly not take their foot off the pedal but maintain their momentum to be well prepared for the inevitable on 6th April 2021, working to embed new tools and working practices across the entire supply chain.

“Additionally, it will be interesting to see if those larger firms that have somewhat arbitrarily imposed blanket bans on PSCs, use the extra time and pressures on their business to take a more informed and balanced approach that uses the various assessment tools and insurance solutions out there to protect their risk without unnecessarily increasing their costs or ability to deliver projects.

“In other words, the market has twelve months to get this right. After that, there will be strict enforcement. Use this time wisely and productively.”

Communication is key in trying times

It’s crucial that contractors, recruiters, and end clients alike know that the private sector IR35 reform has been postponed, not cancelled; any time and resource invested in getting ready for the reform will certainly not be wasted.

If you’re an end client, use this time to perfect your processes and ensure that you’re assessing each and every contractor fairly. If you’re a contractor, make sure your contracts are ship-shape in line with the new IR35 rules. Now, more than ever, businesses will need to rely on flexible workforces to adapt to demand in an uncertain market.

The most important thing to remember, no matter what happens with the legislation or Covid-19, is that collaboration is key. Maintain good communication during the whole process and encourage transparency throughout the supply chain to keep business contacts on-side. Now’s the time to pull together as a workforce.

About the Author

Hannah Robinson is the Digital Marketing Manager at Kingsbridge. Larsen Howie is a provider of specialist insurances and services, including Professional Indemnity cover and IR35 advice, to contractors, freelancers and consultants. The business also leads the way with their specialised IR35 services, with a dedicated in-house team of experts that boast vast, first-hand experience in dealing with all manner of IR35 queries.