Private sector IR35 delay – what you need to know

On Tuesday 17 March the government announced that the planned changes to the way IR35 works in the private sector – changes which IPSE vigorously opposed – would be delayed for one year. The legislation was due to take effect from 6 April 2020; it will now take effect from April 2021. The last-minute delay is a response to the Covid-19 outbreak.

IPSE spoke to HMRC officials to clarify what this will mean in practice. Here is what we understand the situation to be:

The legislation (which still has not been published) will be laid before Parliament, but it will not take effect until next year. In other words, the government intends to ‘lock-in’ the IR35 changes a year in advance.

Does the pre-existing IR35 legislation still apply?

Yes. Contractors will still have to consider the IR35 status of their engagements, just as they have done since April 2000. HMRC will continue to enforce the legislation. If you decide your engagement is ‘outside’ IR35 and HMRC decide to take a look and believe IR35 does apply, it will be you that will be held liable for tax. So make sure you have tax investigation insurance (if you are an IPSE member you already have it as part of your membership).

What happens if your client has already issued a Status Determination Statement (SDS)?

Any SDS which has been issued is now worthless. It is of no consequence. It should be ignored. It has no bearing on your employment or tax status and HMRC has said it will not seek to find out if an SDS has been issued or what it said. Effectively, if your private sector client decided IR35 applied to your engagement, that is now no more than an opinion of a bystander. The only opinion that matters is yours (and HMRC’s of course).

What about the government’s IR35 guidance?

This is being / will be updated. IPSE will provide links to relevant guidance once it’s published.

What about IR35 in the public sector?

In 2017 the government changed the way the rules work in the public sector, making clients and agencies responsible for IR35 status decisions, and requiring them to deduct tax at source from payments made to contractors (where IR35 was deemed to apply). This change foreshadowed the private sector changes, now delayed.

The public sector rules still apply. So, if your client is a public sector organisation, it will still determine the IR35 status of the engagement. Already there are calls to suspend or repeal the public sector rules. Not least because anything that can be done to unburden the NHS during the Coronavirus crisis should be considered. The government does not intend to suspend or repeal the public sector IR35 rules, but watch this space – IPSE will be pushing for it.

What about clients/hiring organisations that have already blanket banned contractors?

While IPSE has welcomed this delay, it has come too late for some contractors. Many clients, particularly in the banking sector (but also elsewhere) took the nuclear approach to IR35 compliance. They decided to stop engaging contractors altogether, so fearful were they of embroiling themselves in the notoriously complex world of IR35.

Our hope is they will now re-evaluate their position and return to contractors. This will be of little consolation to the thousands of contractors that have already closed their businesses as result of this calamitous legislation. However, it would mean contracting in the private sector would continue to be a viable way of working, for the time being at least.

Will the private sector changes definitely come in in 2021?

That is the government’s intention. IPSE will continue to staunchly oppose it. This delay, which has come in the most terrible of circumstances, is a last-minute reprieve and it gives us the chance to try to turn this around in the coming year. It is utterly dreadful legislation and we are aware that many MPs and policymakers are of that opinion. IPSE will spend the next year lobbying for the delay to become a permanent abandonment.

IPSE is very grateful to all our members who have supported us by continuing to pay for membership, writing to and tweeting at MPs, attending our election hustings, joining the protest at Parliament and generally keeping this issue high enough on the agenda to ensure it was quickly dropped in this time of crisis. We also owe a debt of gratitude to Lord Forsyth and Finance Bill Sub Committee, which recently shone a spotlight on the flaws in the government's proposals and called for this delay.

Some of the guidance on IPSE’s website is now out-of-date. Bear with us while we get this changed, and keep checking back here for further updates on IR35 and the Coronvirus situation.


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