IR35 reforms postponed for a year over coronavirus

Reforms to the IR35 tax rules governing contractors using personal service companies have been put back by a year in response to the economic uncertainty caused by the coronavirus pandemic.

Speaking in Parliament last night, Steven Barclay, Chief Secretary to the Treasury, said: "The government is postponing the reforms to the off-payroll working rules, IR35, from 6 April 2020 to 6 April 2021."

However, he insisted that the new rules would be enacted next year.

The government has seen sense and made the right call in these unique circumstances

He continued: "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 broadly the same tax as those employed directly."

Seb Maley, CEO at tax consultancy Qdos Contractor, which has campaigned against the extension of IR35, said that the government had made the "right call" at a time of crisis.

He continued: "The government has seen sense and made the right call in these unique circumstances. Given the economic challenges that lie ahead of the UK, now certainly would not have been the right time to roll out needless tax changes that endanger hundreds of thousands of contractors' livelihoods.

"That said, this is only a delay, albeit a very welcome one. It does, however, give private sector firms vital time to prepare for reform, which can only be a good thing for contractors. What matters now is that businesses use this time wisely."

When the new rules were rolled out to the public sector in April last year, it caused a mass exodus of skilled contractors, leaving the public sector scrambling to find suitably skilled staff to fill the gap left behind, according to Simon Wood, chief innovation officer at IT services firm Clearvision, which runs the ClearHub portal of Atlassian tool specialists.

We have already seen a wave of large organisations rolling out blanket policies on the use of contractors within their respective organisations

However, in advance of the anticipated introduction of IR35 to the private sector, Wood claims that many organisations had already introduced new policies to avoid being hit by the extension of the tax regulation.

"We have already seen a wave of large organisations rolling out blanket policies on the use of contractors within their respective organisations, with many more expressing concerns over the distinction between permanent employees and contractors."

In advance of the anticipated roll-out of IR35 this April, many major organisations made radical changes to the way they handled contractors and freelancers, with some introducing blanket bans on contractors using personal service companies. These include a number of major banks, as well as BAE Systems and pharmaceuticals giant GSK.

Some companies have responded to the uncertainty by offering full-time permanent positions to contractors, but a number of contractors have threatened to simply take their business to lower-tax jurisdictions.