Here at Endeavour Partnership, we have received an increasing amount of enquiries regarding the revised IR35 provisions which were due to be implemented on 6 April 2020. The changes were expected to impact medium to larger-sized companies in the UK.
Today, the Government has announced that as a direct result of the impact of COVID 19, the implementation of new off-payroll working rules will be postponed to 6 April 2021. The decision was announced in the House of Commons as part of the £330billion financial package to help the UK economy during this period of unprecedented uncertainty. Understandably, the Government believes that now is not the right time to introduce new tax changes to contractors when the long term effects of the pandemic are wholly unknown.
What is IR35?
IR35 was introduced to tackle perceived tax avoidance, as HMRC believed that some individuals may have been avoiding paying employee income tax and NI Contributions by supplying their services through an intermediary (usually a personal service company (PSC)) to an end-user client, and paying themselves dividends via the intermediary to save tax.
The IR35 requires the intermediary to determine whether or not the individual worker would have been a deemed employee of the end-user client, but for the existence of the intermediary. If the individual worker would have been deemed an employee, then the intermediary was required to operate payroll in relation to the individual and treat them like an employee, making deductions for income tax and NI Contributions on the fees received.
What does the postponement mean?
It was stated by the Chief Secretary to the Treasury that the current position “is a deferral and not a cancellation, and the Government is still committed to making sure that people working like employees through their own limited company, pay broadly the same tax as those employed directly”.
Due to the postponement, the current tax regime for contractors still stands. However, affected companies who were preparing for the implementation this year should take advantage of the additional time that has been given to them, to review their contractual arrangements in readiness for April 2021.