IR35 postponed – but firms struggle to reverse changes

The coronavirus crisis has forced the government to postpone the implementation of IR35 changes, but questions remain over whether firms will reverse the changes they have already made

The government’s decision to postpone changes to IR35 – with reforms now scheduled for April 6 2021 – may be too late in the day to see firms reverse their approach, according to law firm Stewarts.

“The government’s decision to delay the roll-out of IR35 to the private sector will be welcome news to large corporates as this temporary measure is sure to ease the administrative and financial burden given the coronavirus pressures they will inevitably face,” said Sarah Stenton, tax director at Stewarts.

“Importantly the extension will also allow companies extra time to ensure that they are compliant with IR35. However, many companies will have already undertaken a review of their workforce and, as a result of arguably an over-cautious approach, changed the employment status of its contractors to accommodate IR35. Those companies are unlikely to reverse those decisions despite this 12-month reprieve,” she added.

Darren Fell, CEO and founder of accountancy firm Crunch, agrees with Stenton’s claims that firms are unlikely to reverse decisions around contractors despite the postponement.

“A lot of the damage has already been done,” Fell says. “So many organizations did make blanket decisions, and often it was to the detriment of UK contractors and freelancers.

Fell hopes that those firms who were waiting before making any blanket decisions continue to hold off now the postponement has been announced but is frustrated that the brakes were only put on IR35 due to an extreme global shock.

“It’s taken a global pandemic for the government to realize that the nation’s self-employed need protecting, and they are important to the workforce and for UK businesses – that’s a fundamental realization.

“We know of so many clients, unsure what their client is going to do. Their clients were holding off to the last minute. So, it’s those customers we’re hoping should carry on in their positions because their clients have left it right to the last minute to make a final decision,” he adds.

Seb Maley, CEO of Qdos, specialist tax advisors believed that the changes were not enough, but hoped that this would give businesses adequate time to re-evaluate the implementation of the changes.

“It will at least give private sector firms another 12 months to get their act together and ensure they are ready to make fair and accurate IR35 decisions. The extra year granted by the Government could prove decisive in ensuring that changes do not irreversibly damage the independent workforce,” he said.

However, he was not hopeful that the postponement would lead to a cancellation.

““The Government has insisted that this is a delay, not a cancellation. So it still seems unlikely that changes will be scrapped altogether, regardless of the fact that abolishing IR35 reform would be the smart thing to do,” he added.

Barclay said in the Commons last night that government was still committed to implementing IR35, that the measures were a “deferral, not a cancellation” designed to help protect contractors as the Coronavirus pandemic begins to severely disrupt life in the UK.

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