The news that the government has postponed IR35 tax reforms in light of the coronavirus outbreak should not take the spotlight away from the need for contractors and businesses to prepare effectively for the changes.
Businesses and individuals having to adapt to the uncertainty caused by Covid-19 are likely to welcome the news that changes to the rules around IR35 will not be implemented next month as planned. However, speaking during the budget debate on Tuesday 17 March, chief treasury secretary Steve Barclay made it clear that the decision was made in response to the ongoing spread of Covid-19, and that the planned changes are being delayed rather than shelved.
“This is a deferral 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 the same tax as those employed directly.”[1]
With the new rules now not due to come into force until April 2021, forward-looking contractors, intermediaries and employers should take the opportunity to plan ahead and make sure they are fully ready.
Avoiding a knee-jerk reaction
If anything, the reason behind the unexpected delay should provide an even stronger motive for those on both sides of the equation to be more aware of the implications of IR35 changes. The likelihood of ongoing economic uncertainty makes the question of job stability and the pros and cons of permanent employment versus contracting more important than ever, both for contractors themselves and for employers.
Our own survey, conducted less than two months ago, showed that few contractors were aware of the coming changes and even fewer understood how they could affect them. Nearly two-thirds (66%) didn’t know what IR35 is, despite the fact that the original legislation has been around since the turn of the Millennium, while almost three-quarters (74%) had no idea of the planned changes and their implications.
Meanwhile, research by the Association of Independent Professionals and the Self Employed (IPSE) published last month indicated that nearly a third (32%) of freelancers were planning to stop contracting in the UK due to the changes.[2]
The IPSE research found that nearly 40% of freelancers expected their clients to stop using outside-IR35 contractors. Such a view seems justified given media reports of just such a blanket approach being taken by big name firms.[3]
Time to make informed choices
Given the unpopularity of the planned changes, it’s unsurprising that news of the postponement has been met with a generally positive reaction. However, since the government insists the changes will still come into force in due course, it would be a mistake for either contractors or employers to treat the issue as resolved. Instead, the next twelve months should be welcomed as an opportunity to fully engage with the issue.
As a contractor:
- Don’t treat the issue as a problem for your accountant – use the delay as an opportunity to properly inform yourself;
- Ensure you understand whether the changes are likely to affect you – speak to your accountant and your client(s), as well as HMRC if necessary;
- Be ready to discuss the implications with your client(s) and seek a satisfactory (and compliant) solution;
- Calculate the likely financial impact and be open minded about what working arrangements may be best for you in future.
The deferral gives contractors and employers alike the opportunity to understand the changes, properly assess their impact, raise questions with HMRC and then make considered decisions about the best course of action. What’s more, the potential lull in activity forced upon contractors and businesses by the current situation provides an opportunity to take a step back and think strategically. We should all try to make the most of the time we now have to address the issue in a considered way.
Whatever changes occur in the professional world, we’ll equip you with the knowledge you need. For more information on IR35, check out our guide here.
[2] https://www.ipse.co.uk/resource/ir35-in-the-private-sector-results.html (external link)
Disclaimer:
At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.
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