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IR35: changes to off-payroll working rules postponed

19 March 2020
As part of its response to COVID-19, the Government has postponed the implementation of changes to off-payroll working.

Amidst the economic measures in response to the coronavirus pandemic, the UK government has announced a delay to the implementation of reforms to the off-payroll working rules (IR35) from 6 April 2020 to 6 April 2021. 

Announcing the postponement, Steve Barclay MP, Chief Secretary to the Treasury, said: "This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals" and stressed the measure was not being cancelled: "This is a deferral not a cancellation and the government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company pay the same tax as those employed directly." 

Until very recently, including in the Chancellor's Budget speech, the government had confirmed it would be pressing ahead with the planned reforms, despite significant criticism raised by business, representative bodies and professional advisers, including DWF, that the new rules had a disproportionate impact on business, there was insufficient time to prepare, uncertainty regarding the operation of the rules for businesses and labour supply chains and the government's CEST tool was not fit for purpose.  

Facing questioning by the House of Lords Finance Bill sub-committee the day before the announcement, Lord Forsyth added to growing pressure on HMRC, saying: "I wondered whether HMRC had considered, given the enormous financial impact which we are about to experience as a result of coronavirus, whether it might not be sensible for you to defer introducing these changes at least for six months if not a year".  It looks like the government has now listened.  

Whilst the delay will be welcomed by most businesses and contractors, it comes rather late in the day as many businesses have already spent a significant amount of time and money preparing for these changes.  Whilst many will understandably be frustrated that the postponement has come at the eleventh hour, a lot of businesses will now be ahead of the curve in terms of that readiness.  Although businesses will currently have more pressing supply chain concerns in light of Covid-19, there is an opportunity for them to maintain that momentum and implement the changes in readiness for April 2021.  

We await more detail from government but it does beg the question whether HMRC will maintain a soft landing for penalties when the changes are eventually implemented in April 2021. Businesses will not want to lose any advantage and ensure that they are in a position to comply with the rules from April 2021.  

Should you have any queries in relation to off payroll working or the implications of the deferral of the new rules, please do not hesitate to contact us. 

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