Will The Delay in Implementation Of IR35 Changes Give The UK Government Chance To Consider Issues Again?

There is no doubt that contractors and businesses are coming under severe financial pressure as a result of the current Covid 19 global crisis.

While the virus will eventually be brought under control, its financial impact will continue to be felt long after this happens.

Against this background, there has been some slightly positive news for accounting professionals, contractors and businesses. HM Treasury has announced that the introduction of the IR35 tax avoidance reforms has been delayed until 2021. This is part of the government’s package to support businesses at this time. However, the changes are not cancelled so the relief is mainly due to the concerns being lifted at this point when businesses, contractors and accounting professionals need to concentrate on other matters.

The aim of the IR35 changes

Even though the introduction of the reforms will be delayed, the idea behind them remains the same. They are intended to take the responsibility for deciding how limited company contractors should be taxed away from the contractors and give it to the companies that engage with them.

This is aimed at removing the ability for contractors to mis-classify their professional engagements in order to pay less tax. As accounting professionals will be only too aware, this has been a controversial move, given that contractors could end up paying the same level of tax and national insurance as employees without receiving benefits such as a pension or holidays.

Quite understandably, this has caused much concern in the lead-up to the reforms being introduced. Now, that concern has been removed temporarily, in the midst of all the issues that businesses, contractors and finance professionals are currently dealing with.

What is the way forward for the IR35 reforms?

The truth is that there has already been a significant impact as a result of the announcement of these reforms. Many contractors have chosen to leave companies because their outside IR35 work was to be reclassified. It’s also been the case that many companies have chosen to stop working with outside contractors in order to avoid any of the complexities.

However, the relief from IR35 concerns in the short term is a welcome break for contractors who need to put all of their energies into attempting to secure financial survival, at this time.

In the longer term, it seems unlikely that the government will complete any major u-turns, when it comes to IR35 reform. However, the delay may provide more time for the House of Lords Review into the reforms to be published and considered. For accounting professionals and contractors alike, it will be interesting to see what changes, if any, this brings.

The delay could also provide the government with the opportunity to communicate the content of the reforms more adequately and address concerns. Whether this happens remains to be seen. Things should become clearer once the Covid 19 pandemic is controlled and the world begins its financial recovery.

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