What effect will IR35’s deferment have?

The road to the IR35 rule change has certainly not been a smooth one. The contracting rule which came into effect in 2000 was poised to have a major overhaul in April this year, taking the responsibility for determining tax status from the contractor to the business. This created waves in the contractor industry, with organisations concerned about the extra administration and responsibility associated with correctly assigning IR35 status and contractors worried about lost income.

The emergence of Covid-19 this year and the March lockdown saw the world plunge into chaos, triggering confusion over the April IR35 deadline and eventually a postponement to the change. In mid-March it was announced that the changes to the off-payroll working rules in the private sector would be delayed by a year, thanks largely to the pandemic and corresponding business uncertainty. This has given contractors and the businesses that engage them a year’s grace to get their paperwork in order and think hard about their next steps – but what impact will the deferment have on UK business over the next few months?

While the deferment of the rule change was a welcome relief for many across the UK, the delay doesn’t necessarily mean anything will change. When the delay was announced, Chief Secretary to the Treasury, Steve Barclay, said “This is a deferral and 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 broadly the same amount of tax as those employed directly.” This suggests that while the rule change has been postponed, there will be no changes to the details or how the rules are enforced, much to the disappointment of many contractors. Similarly, ongoing lockdowns and economic uncertainties have led to some hopes of there being further delays to the introduction of the rules, but these have been widely disregarded by employment experts.

Contractors contacted by IR35 consultancy Qdos are not feeling optimistic about the delay, with 75% saying they lack faith in the ability of their clients to accurately determine how they should be taxed. This comes on the back of reports of ‘blanket rulings’, where organisations have been making mass evaluations of contractor IR35 status rather than determining each individual on a case-by-case basis. Despite this, more than 90% of contractors would like to continue engaging with clients as personal service company or limited company contractors once the rule changes have come into effect – but whether this will be possible remains to be seen.

Quanta have partnered with specialist industry experts, offering status reviews, role assessments, training, legislative updates, round tables and documentation. We run IR35 project internally to support our contractors with utilising a bespoke IR35 status determination tool, assisting with general IR35 queries, retention calculations and IR35 status appeal process. There is a tax indemnity insurance that will be purchased for any contractor running through Quanta post April 2021, to cover for any HMRC enquiries up to 4 years off the back of the status review, if determined as outside. This indemnity insurance covers all parties in the chain, including our clients. For our clients, we would like to offer the option to extend our own status review tool, sharing the outcome. We may also assist our clients with providing our Fee Payer services or SOW services for contractors deemed to be outside IR35. You’ll find a raft of resources on our website to help prepare for the deferred date, or you can contact us to start a conversation.