IR35 rules to be applied as of next year

In the UK Parliament on 17 March 2020, a deferral of the changes to IR35 has been announced (the off-payroll working law) in the private sector for a year until 6 April 2021. The purpose of the delay is to help businesses and individuals who are facing difficulties as a result of COVID-19. This is only a deferral and not a cancellation, and the government remains committed to the policy to ensure people working like employees but through their own limited company pay broadly the same as those employed directly (IR35 rules).

The changes were to have taken effect as from 6 April 2020 and it would have been difficult for business to ensure that these were properly implemented when there are now other more pressing and challenging issues on which to focus. Many businesses have already made significant progress with the changes and this will give further time for implementation. However in this interim period the following main points must be considered:

  • Organisations may need to consider whether they require the contractor’s compliance under IR35 under old rules for any particular contractor/role deemed employed and where these contractors are now reengaged through a PSC for a further year on the same terms.
  • For convenience purposes, organisations may wish to reengage contractors (or continue with that arrangement) through an umbrella company or agency. However both contractors and engagers must be aware that such structure has a 12 month deadline and that they will have to go through IR35 changes next year.
  • Organisations must apply an extensive communications programme with all contractors, suppliers and clients. Engagers may wish to revisit more immediate policy decisions taken (e.g., engagers who have already implemented IR35 rules, may choose to reconsider whether that policy should now be implemented from 6 April 2021).
  • Original day rates will have to be reinstated for those who have renegotiated day rates with PSC contractors and agencies through which they are supplied (if any). Clauses referring to withholding Pay As You Earn (PAYE) and national insurance contributions (NIC) in many cases may not be removed, since they will typically be operative only where there is a legal obligation to make such withholdings.
  • For contractors’ PSCs which are paid directly, new controls and payroll processes may be paused for another 12 months.
  • Where engagers have sought contract variations prohibiting supplier use of PSC contractors, these prohibitions could be deferred for a year.