The IR35 rules apply to contractors who provide services through a limited company, but whose working arrangements are more like those of a directly engaged employee. 

The controversial changes to the rules were due to take effect from 6 April 2020 and would have made the client, rather than the contractor, responsible for assessing the contractor’s tax status. In the event of an insider IR35 determination, the tax and NICs would be payable by the client or the ‘fee payer’ (e.g. the agency that pays the contractor’s limited company).

As part of the Government’s response to Covid-19, the deputy Chancellor announced last week that they would defer the implementation of the IR35 reforms until April 2021. The Government stated that they were committed to implementing the new rules next year. This may just be a temporary postponement, but with the current economic certainty, we would not rule out further changes/delays.

The main question for clients today, is how far to go to unwind any changes that have taken effect, or are about to be implemented.

It would seem sensible to pause moving contractors into different models if this would bring higher costs or risk. If you supply contractors to any ultimate clients, you should consider whether the ultimate client’s approach to IR35 has been relaxed, or whether they still wish to remove contractors from their supply chain.

There is also a potential tax risk to consider which primarily affects the contractor, but which could also affect the business. If the business allows an ‘inside IR35’ contractors to continue working for it on a self-employed basis (despite having assessed them as inside IR35), it’s possible HMRC might consider this to be facilitating tax evasion. Whilst this would seem harsh given the current economic climate, we would recommend that if such contractors want to remain working via their limited company after 6 April 2021, they are required to warrant that their limited company will re-conduct their own IR35 assessment and indemnify the business for any tax liabilities arising.

Finally, we would highlight that that contractors that are concerned about job security and the fact that there is currently less government support for the self-employed, might now want to move on to an employment arrangement. They might, for example be keen to do so so that they potentially benefit from the Coronavirus Job Retention Scheme if they were furloughed, or so that they receive sick pay.

Please let us know if you would like to discuss how the changes to IR35 affects your business.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.