What’s Next For Delayed IR35 Reform?

A long-anticipated reform to IR35, also known as off-payroll working, was due to come into effect at the start of this tax year, on 6 April 2020.

The Government then decided to postpone the implementation of this reform, as the coronavirus pandemic was already providing for a challenging environments for contractors and the public sector, hence the choice to reschedule to April 2021.

Although the Government stressed that the decision was a deferral rather than a cancellation, shortly thereafter the House of Lords Economic Affairs Finance Bill Sub-Committee conducted an enquiry into the IR35 rules.

Speaking of the findings of their inquiry, chair of the Committee Lord Forsyth said:

“Our inquiry found the rules to be riddled with flaws and unfairnesses. The Government has overlooked the potential impact on the wider labour market, and particularly the gig economy. The Committee also heard that many companies were already making blanket status determinations and laying off contractors in anticipation of the implementation of these new rules, despite their delay.“

Just a few days after the inquiry was published, financial secretary to the Treasury Jesse Norman refused to address the Lords’ concerns by confirming that the Government’s thinking around IR35 rules has not changed, and that the reform will kick in on 6 April 2021 as planned.

One of the main concerns around IR35 rules is that the reform puts contractors in a disadvantage position as the responsibility of determining their employment status falls onto the client, leading some organisations to make blanket decision to stop employing contractors altogether.

Tory MPs have raised these concerns to Mr Norman, calling for a review of the rules and citing the 2017 Taylor Review, which argued there should be three categories of worker: employed, self-employed and “dependent contractor”.

At the present time, the Government confirmed that they are determined to pursue the scheduled course of action, although Jesse Norman reassured critics that more research into the matter will be available by the time the new rules are implemented.

“The government will use this additional time to commission further external research into the long-term effects of the reforms in the public sector”, said Norman.

The best option for companies that hire contractors on a regular basis, and for workers operating through their Personal Services Company is to review the rules and upcoming changes and use this delay to better prepare themselves to reassess their strategies on the basis of the new legislation.