IR35: Reforms postponed

Yesterday, in light of the situation surrounding COVID-19, the Government confirmed that it will be postponing the reforms to the off-payroll working rules from 6 April this year to 6 April 2021.

It was only one week ago that the Government announced that the changes would go ahead as planned, when the Chancellor gave his Budget speech in spite of considerable opposition from businesses and affected individuals. The reforms intend to ensure that individuals working like employees but through a personal service company (PSC) pay broadly the same tax as an employee.

The Government is clear that this is a postponement and not a cancellation – and that the policy will be reintroduced next year. The delay comes amidst the Government’s latest announcement of a new package of support measures for businesses given the economic challenges of the Covid-19 outbreak.

The deferral, whilst superficially attractive, seems to make little policy sense. The reason for the proposed changes to the rules was because of HMRC’s view that there was mass tax avoidance by PSCs – having reached that view, it seems rather odd to ignore it for another year given the rules are now ready to go. It also makes little sense that the rules continue to apply to the public sector (including the NHS).

Of course, many businesses will have already made significant preparations in advance of the (former) deadline of 6 April this year. It also raises serious questions as to the status of those workers who have been determined to be within the rules and whether these determinations can now be ignored by clients.