Orr Litchfield
Solicitors and Business Lawyers
Solicitors and Business Lawyers
The widely debated and often criticised 'off payroll' changes to the IR35 rules were due to be extended to private sector businesses with effect from April 2020. This has now been deferred by a year, until 6th April 2021.
The Government has, however, made it clear that this is a postponement made necessary by the Coronavirus outbreak – it is not a cancellation! Chief Secretary to the Treasury, Stephen Barclay, said that “The Government is postponing the reforms to the off-payroll working rules (IR35) from April 2020 to 6th April 2021…. . This is a deferral in response to the ongoing spread of COVID-19 to help businesses and individuals… .This is a deferral, not a cancellation, and the Government remains committed to reintroducing this policy to ensure that people working like employees but through their own limited companies pay broadly the same tax as those employed directly.”
What is commonly known as “IR35” began its existence in the form of an Inland Revenue press release (IR 35) on 9th March 1999. It outlined the Government’s plans to try to stop the growing use of single owner limited companies to provide professional services to clients, where the individual owner was working in a manner which was the same as or similar to a traditional ‘employee’, while at the same time enjoying the tax benefits of their company structure. The IR35 press release was converted into law by the Finance Act 2000.
Since its enactment, successive governments have taken the view that the IR35 legislation was ineffective in preventing the growth of single owner private companies and ‘disguised employment’ being used as a way of avoiding tax. The most fundamental ‘upgrade’ to the IR35 rules came in April 2017 with the implementation of ‘off-payroll working’ changes, which affected the public sector. This put the onus of deciding whether or not a particular contract falls within IR35 (or not) on the engager (typically the client or sub-contractor) for the first time. Accordingly, rather than limited company contractors operating the IR35 rules themselves (as they had done since 2000), it became the responsibility of the public sector client to determine the employment status of the individuals carrying out work for them through the limited company. If a contractor’s engagement is within IR35 then the public sector client is also responsible for deducting the appropriate taxes and complying with other relevant employee legislation.
The deferred implementation of the extension of the 'off payroll' changes to IR35 to private sector businesses until 6th April 2021 will give private sector businesses and consultants (and others affected by the changes) further time to understand the ‘off-payroll’ rules and prepare properly for their implementation (to the extent that they have not already done so). Hopefully, it will also provide time for the Government and tax authorities to improve the advice, assistance and tools currently available in relation to IR35 in order to help the business community deal with these changes in a clear and practical way and minimise the level of confusion and concern that appears to exist at the moment.
If you have not already done so, it is important that you prepare and plan for the proposed extension of IR35 to private sector businesses. This applies whether you are the engager (typically, sub-contracting) or the engagee (typically, a consultant and single owner of a limited company). Review your existing contracts, your actual business practices and their respective practical implementation – all of them should be aligned.
It is important to remember that the changes are not currently intended to apply to “small businesses” (although the IR35 rules continue to do so) and that the fundamental change will be that the onus of deciding whether or not a particular contract falls within IR35 (or not) will be on the engager rather than the engagee. There is no need to panic. It may be that there is very little for you to change.
Need to talk?
If you would like to discuss IR35, your business contracts, your business practices and/or their respective practical implementation or put in place a business contract review process, please contact us. We can help you to plan and prepare for the changes to IR35 in a way that is right for you and your company.
Contact us
If you would like more information about IR35 or would like to discuss a potential or existing contract, please contact us by telephone on +44 (0)20 3126 4520 or +45 38 88 16 00 or by email at enquiries@orrlitchfield.com
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full Legal Notices on our website.
©Orr Litchfield 2020
