IR35 Delayed: COVID-19

It has now been confirmed that the new “off-payroll” (IR35) rules have been delayed by one year, until 6 April 2021, as part of the package of measures to help businesses deal with COVID-19.

The new rules, which were due to come into force on 6 April 2020, will apply to many organisations contracting for the services of workers via a contract with an intermediary such as a company (often called a “Personal Service Company”), rather than by a direct contract with the worker concerned.

The intention of the “off-payroll” rules is to help clamp down on perceived tax avoidance. HMRC argue that by providing their services via an intermediary, both the worker him/herself and the client organisations engaging them may be gaining an unfair tax advantage. If looking at all the facts taken together (and based on a number of “tests” of employment), the worker should really be regarded as an employee, the “off-payroll” tax rules aim to ensure that they will end up paying broadly the same amount of tax and NIC as a conventional employee.

The system, which was to have come into force in less than a fortnight, is an extension of long-standing “IR35” rules: when introduced, the new regime will make many organisations (other than “small” private sector entities) responsible for assessing, on a case-by-case basis, whether their arrangements with contractors are “caught” by the “off-payroll” rules. If the assessment is that the arrangements are “caught”, the client organisations are potentially obliged to operate PAYE and account for employer’s NIC on payments under the contracts concerned. Organisations operating the new rules will need to have in place a fairly onerous administrative system to ensure compliance. Many organisations have been working hard in recent months to assess what the new rules mean for them, and to get ready for these changes.

The delay is obviously very welcome news for organisations who are struggling with the current pandemic.

HMRC is however clear at this stage that this is only a delay – the plans are not being scrapped entirely, and they are adamant that the new rules will come into force on 6 April 2021. As soon as organisations which fall within the new rules are able to return their attention to this issue, it will be important for them to ensure that they are ready to comply well in advance of 6 April 2021.

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If you require any assistance in connection with the “off-payroll” rules, please contact Diane Wright or complete the contact form below.

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