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U.K. Groups Cheer Delay in Off-Payroll Working Rules Reforms

Posted on Mar. 19, 2020

Tax bodies, trade groups, and others welcomed the U.K. government’s deferral of reforms to off-payroll working rules for a year amid the coronavirus crisis, but some called for other measures to be delayed as well.

HM Treasury on March 18 formally announced it would delay implementing the reforms to the rules, also known as IR35, by 12 months so they would take effect on April 6, 2021, instead of April 6, 2020. The decision is part of the government’s economic response package to the ongoing COVID-19 pandemic, which also includes a business rates holiday to all hard-hit businesses in the retail, hospitality, and leisure sectors.

Chief Secretary to the Treasury Stephen Barclay first announced the decision the evening of March 17, but underscored that the government is not canceling the controversial reforms.

The IR35 regime was introduced in 2000 as a tool to counteract “disguised employment” tax schemes through which contractors circumvented income tax and National Insurance contributions. The rules were intended to ensure that individuals working through a personal service company pay roughly the same amount of employment taxes as if they were directly employed.

Since April 2017, public authorities engaging individuals through personal service companies are required to determine whether the off-payroll working rules apply. The public authority must also deduct tax and National Insurance contributions if it directly compensates the individual or, in cases when an agency pays the worker, must inform the agency that the rules apply. The U.K. government announced in its October 2018 budget that it would delay extending the IR35 regime to the private sector until April 2020.

The U.K. government plans on legislating the new implementation date in the forthcoming Finance Bill, which will be published March 19, according to Treasury.

Michael Steed, co-chair of the Association of Taxation Technicians’ technical steering group, called the move “a pragmatic and sensible decision” in light of the uncertainty and unprecedented challenges that both businesses and HM Revenue & Customs face as the coronavirus crisis unfolds.

“We had called previously on the government to delay the introduction of these rules on the grounds that businesses have not had time to make adequate preparations,” Steed said in a March 18 statement. “In particular, the lack of final legislation means there remains a real lack of clarity as to how the off-payroll rules will operate in practice in the private sector.”

Steed expressed hope that the deferral would give HMRC more time to address the business sector’s concerns over the changes.

The pandemic presents significant challenges for individuals, businesses, and employers, John Cullinane, tax policy director of the Chartered Institute of Taxation, said in a March 18 statement. “These new rules had the potential to significantly impact the labor market, and their deferral is welcome,” he said.

However, the government should take a closer look at postponing other measures that are set to take effect in April to avoid further unnecessary taxpayer burdens during the pandemic, Cullinane added. These include new 30-day capital gains tax reporting and payment requirements, which start April 6 and would need a new reporting system that may not be up and running by the effective date, he said.

“We would encourage the government to look critically at the Finance Bill, and those measures in previous Finance Acts which take effect next month, and defer those which are not absolutely vital,” Cullinane said. “It will also ensure that any remaining measures stand a fighting chance of receiving proper scrutiny.”

Andy Chamberlain of the Association of Independent Professionals and the Self-Employed called the government’s decision “right and responsible,” as it will reduce stress and income losses for the self-employed.

“These changes have already undermined the incomes of many self-employed businesses across the U.K.,” Chamberlain said, adding that the reforms could have done even more damage had they taken effect on April 6 as planned.

“This is a sensible step to limit the damage to self-employed businesses in this grave and unprecedented situation, but we also urge the government to do more,” Chamberlain said. “It must create an emergency income protection fund to keep the U.K.’s crucial self-employed businesses afloat.”

Certainly human resources departments across the United Kingdom will “breathe a huge sigh of relief” at the news, according to Susan Ball, employer solutions partner at RSM UK. The government made the right decision to delay the reforms, which should reduce the strain on both organizations and contractors as the U.K. economy is poised to enter turbulent times, she said.

“‘Those organizations who were struggling to have ‘business as usual’ processes and procedures finalized and in place have been given time to take appropriate action,” Ball said. “They will also benefit from much clearer guidance from HMRC than they have had until recently.”

Those who were already prepared for the IR35 reform are also now free to focus limited resources on managing the effects of the coronavirus crisis, Ball noted. “This has got be better for everyone, despite the preparation costs which have been incurred to date,” she said.

The move also gives more time to the House of Lords Economic Affairs Finance Bill Subcommittee, which is reviewing the reforms, to publish its findings, according to Ball. She expressed hope that Treasury and HMRC would take further recommendations into account before April 2021.  

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