Less than a week after the controversial extension of IR35 to the private sector was confirmed in the Budget, and two weeks before the measures were due to come into effect, Chief Treasury secretary Steve Barclay has announced that the IR35 reforms will be postponed for one year.
The new IR35 rules, which will bring the private sector in line with the public sector, will now come into effect on 6 April 2021. According to Barclay, who made the announcement during a Budget debate in the Commons, the move is part of a broad package of measures the Treasury has announced to help protect the economy from the impact of the coronavirus pandemic.
He confirmed that the decision was “a deferral, not a cancellation, and the government remains committed to reintroducing this policy”.
Businesses pushed back against the proposed reforms when they were originally announced, claiming that the changes will put unnecessary pressure on organisations that rely on contractors and may be forced to reduce numbers if tax bills increase.
For the uninitiated, IR35 is the government’s set of anti-avoidance tax rules that are designed to fairly tax “disguised employment”. If a contractor is deemed to be inside IR35, they will be taxed in the same way as an ordinary employee. At present, in the private sector the individual contractor is responsible for determining whether they fall inside or outside of IR35, but from April 2021 companies will be responsible for assessing the IR35 status of every contractor they employ and taxing them correctly.
The public sector has been operating under these rules since 2017, and to assist with the process HMRC created a digital tool to help public authorities make the decision, called Check Employment Status for Tax (CEST). CEST consists of a simple questionnaire, which can be used by both public and private sector contractors, making it easy for both employers and contractors to determine their status in relation to IR35.
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