The most recent IR35 reform has been postponed for 12 months due to the COVID-19 pandemic. While this is good news for contractors, it simply delays the issue, which means that IR35 continues to be a hot topic of conversation and many are now using this time to find a way to get the reform scrapped altogether.
As contractor accountants, we know the impact that IR35 can have on contractors’ livelihoods, so we’re taking a look at what this delay means for you and what people are doing to see IR35 gone.
What Does the IR35 Deferral Mean for You?
When you’re a contractor, you have to pay special attention to IR35. This is because IR35, also known as ‘intermediary legislation’ or off-payroll tax, can lead to contractors having to pay thousands in back taxes. In fact, BBC presenters David Eaves, Tim Wilcox and Joanna Gosling have been found to be within IR35 and have to pay £920,000 in unpaid taxes. Staying compliant is, therefore, critical to avoid a massive HMRC bill.
The recent IR35 was set to come into effect once the 2020/21 tax year started but, because of the coronavirus pandemic, this decision has been deferred until next year, as confirmed by Chief treasury secretary Stephen Barclay.
This delay means you will now have more time to prepare for the upcoming changes. Many contractors face uncertainty due to the pandemic, so postponing the reform has brought great relief to many individuals. Using this time to ensure you are meeting your IR35 obligations – and to make sure you remain compliant – is important. The new date allows for some breathing space, but contractors shouldn’t be complacent, as these 12 months can help you to prepare and take action as needed.
Many agree that this time should also be used by the government to improve communications when it comes to the IR35 reform. The extension provides HMRC with the opportunity to address people’s concerns and improve their assessment tool as well.
In addition, many businesses that decided to stop using contractors now have more time to overturn that decision and to consider implementing flexible work in their strategy once more.
Daniel Fallows, Director at Gorilla Accounting, agrees that this delay is a good thing, but he also understands there is still a lot of work to do:
“This deferral is good news, especially in the light of the highly uncertain situation we find ourselves in battling coronavirus and the huge economic impact. However, this is still a long-term issue as the government still intends to bring these rules in for the private sector next April. We hope that common sense will prevail in the intervening time and that this damaging legislation can be scrapped once and for all, as both businesses and contractors will suffer unnecessarily.”
We offer our customers specialised accounting for contractors, so we can assist with anything you need, including the matter of IR35. Larsen Howie, our IR35 Contract Review provider for contractors, freelancers and consultants, can answer your questions and help you to understand the reform that will now be implemented on the next tax year.
Contractors Looking to Scrap IR35 Reform
Many people are now using this time to find a way to prevent the upcoming changes from ever coming into effect.
Campaigner Dave Chaplin is behind the Stop the Off-Payroll Tax, which seeks to scrap IR35 in its entirety, as he believes it does more harm than good and puts businesses at risk. IR35 changes the way contractors, clients and agencies interact and engage, forces thousands into false employment and leads to excessive taxation.
The upcoming reform will see the responsibility to assess IR35 status shifting from contractors to employers, a move that will impact around 230,000 contractors in the UK. While Chaplin appreciates that this is a welcomed measure, he also says that:
“Over the next year, it’s time to finally overhaul the discredited IR35 legislation, which everyone knows doesn’t work and to instead come up with a way to properly recognise contracting and freelancing in the tax system and ensure people are either classed as self-employed or are employees with full rights and benefits.”
This means that the next 12 months will be critical in the fight against IR35 and its reform.
At Gorilla Accounting, we provide you with expert IR35 advice so, if you’re unsure about what this rule means and how it can affect you, we can help. We’re also limited company accountants, so please don’t hesitate to talk to us if you need more information on how to set up your business or how to stay compliant with government legislation.