Budget IR35 changes delayed: Industry reacts to coronavirus postponement of IR35 reforms

Rishi Sunak has been busy since taking over as Chancellor in February. In that time he’s announced his Budget, which he devised in 33 days, and has had to come up with a fresh round of financial measures to cope with the ongoing coronavirus pandemic that has threatened to take a huge toll on the UK’s economy.

The Chancellor made no mention of the IR35 changes in his speech but the policy paper published after his address in the House of Commons said the reforms would take effect on April 6.

IR35 affects all contractors or freelancers who do not meet HMRC’s definition of self-employment and the Government said it was “right to address the fundamental unfairness of the non-compliance with the existing rules”.

The legislation was designed to stop contractors working as ‘disguised employees’, by taxing them at a rate similar to employment.

Companies in the public sector have had to decide whether their contractors fall under IR35 since April 2017 and this was due to be extended to the private sector this year.


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Chief Treasury Secretary Steve Barclay told the House of Commons the decisions was “a deferral, not a cancellation, and the government remains committed to reintroducing this policy”.

Ed Molyneux, CEO and co-founder of cloud accounting software company FreeAgent said: “Many contractors and accountants have been warning for months that the private sector reforms to IR35 will be incredibly damaging for the UK’s contracting sector, but their concerns have been largely ignored until now.

“It’s a shame that it has taken a global pandemic for any action to be taken, but I’m nevertheless very glad that this unhelpful policy has now been deferred – even if it ends up merely being a year-long stay of execution.

“Ultimately, reforming IR35 legislation into the private sector is likely to have a dramatically negative effect on UK freelancers and contractors.

“The decision will essentially push them into quasi-employment but without any of the protections that they would receive if they were actual employees.

“Our own research found that among business owners who actually know what IR35 is, the majority believe that the legislation will have negative consequences for independent workers – and while the news of a year delay will certainly provide relief in the short term, this cannot be seen as a sustainable, long term solution.

“However, I also think that deferring the reforms due to COVID-19 may actually represent a good opportunity to completely rethink how we treat our flexible workforce.

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“As a nation, we’ve been complacent about acknowledging the challenges and sacrifices that many freelancers, contractors and self-employed people face.

“Now that there is a genuine crisis affecting all areas of the economy, it’s shining a light on how vulnerable these workers are.”

Mr Molyneux added that the coronavirus crisis was going to highlight the “unsustainability” of a system where contractors trade statutory sick pay, holidays, maternity leave or any of the other standard protections that their employed counterparts enjoy for freedom and a flexible work-life balance

Matthew Sharp, a specialist in tax law at European law firm Fieldfisher, said: “While the move is welcome, it will come as little comfort to those workers whose contractor relationships have already been terminated by companies too daunted by the changes to assess and adjust their contractor relationships.

“Once the current coronavirus crisis subsides, Government should use this 12-month extension to significantly improve the quality of its communication on this issue and address concerns with the efficacy of HMRC’s online tax assessment tool, which has proved to be unfit for purpose.

“Businesses meanwhile are urged to make the most of this reprieve to fully prepare their workforces for the new rules by mapping their current and future exposure for IR35 and ensuring they are set up to make deductions for tax where necessary.”

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