HMRC delays introduction of IR35 because of coronavirus

After announcing two massive aid packages, the Government will now delay IR35 to further support business. 

The mounting pressures on business have persuaded the government to delay its IR35 scheme for off-payroll working by one year. 

The rules would have applied for people contracting their services to large or medium-sized organisations outside the public sector and were due to come into effect in around two weeks’ time.

They will now be delayed for one year from 6 April 2020 until 6 April 2021.  

HMRC statement

In its press release HMRC stated:

“This is part of additional support for businesses and individuals to deal with the economic impacts of Covid-19.  

“This means that the different rules that exist for inside and outside the public sector will continue to apply until 6 April 2021.” 

Surprising delay

Given the scale of measures the  Government has been working on to keep businesses functioning, many will be surprised that the decision was not taken earlier.  

It was clear that major disruption was looming or businesses and their human resource professionals. The added complication of the new rules could have been removed in the Budget.

However, HMRC is adamant that IR35 will only be delayed. The timescale of one year is the shortest possible deferral. The Chancellor has given some the impression the Government may tentatively believe that business only requires a year of extreme support.

The announcement ended by underlining that the delay: “…is a deferral of the introduction of the reforms, not a cancellation.  

“The Government remains committed to introducing this policy to ensure that people working like employees, but through their own limited company, pay broadly the same tax as individuals who are employed directly.” 

AAT reaction

Brian Palmer, tax policy adviser at AAT, said:

“This delay to the implementation of off-payroll working rules may help to reduce the impact on individuals whose businesses and careers have been adversely affected due to coronavirus (Covid-19). However, for many it simply comes too late.”

“However, as we have previously commented, we hope that there will still be a ‘soft landing’ period following the implementation in April 2021 and that the government will take this into account as part of the changes to implementation following a review as announced in the Budget last week.

“This would provide much-needed reassurance from HMRC to employers or contractors who have taken reasonable steps to comply but get something wrong, as well as those recovering from the effects  of Covid-19, that HMRC will not be pursuing them with fines and penalties at what is likely to be a particularly difficult time.”

Summary 

With everything else that is going on at the moment the delay of IR35 in the private sector is welcome. But for some, it comes too late.

Get the latest on the Covid-19 situation:

David Nunn is Content Manager at AAT.

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