The controversial IR35 legislation, created to tackle tax avoidance by both workers and the businesses hiring them, is set to come into force on its revised launch date of 6 April 2021, regardless of any future lockdowns or further economic collapse due to the COVID-19 pandemic. The impact of the virus on the UK economy saw the original 2020 start date put back a year in March, but commentators are warning that the same scenario is unlikely to play out again.
Despite the opposition to IR35, including a House of Lords report describing it as “inherently flawed” in terms of workers’ rights, as well as high profile celebrities heading for the courtroom, HMRC is pressing ahead and has published its final technical guidance to enable contractors and companies to put compliant processes in place before the deadline, now just six months away. HMRC is also launching a series of webinars as part of its education programme around the legislation that requires employment taxes be paid by people who provide services to a business through an intermediary, usually a personal service company (PSC), if that person would otherwise have been regarded as an employee.
It is considered very unlikely that the Government will change their stance over IR35 again. Its last “review” of the rules, in response to much vocal opposition, turned out to be nominal, and the latest delay was announced at the peak of the virus lockdown, so it is doubtful that the coronavirus will be seen as a reason to change direction a second time. Furthermore, the Government has borrowed vast sums to prop up the economy through 2020 and the Treasury now needs to fundraise wherever it can. The fines associated with non-compliance of IR35 could actually be a lucrative source of income, despite assurances from HMRC that it will be lenient within the first 12 months of adoption.
The final version of the IR35 legislation was confirmed in the Finance Act 2020, which received Royal Assent in July of this year. While it remains fundamentally the same as before the pandemic delay, there are a few key changes worth noting:
• The rules do not apply to end-user clients that have no UK connection.
• A company will be exempt if it is considered “small”, but the obligation is now on the end-user client to confirm this size exemption.
• The date change means that if services were all provided prior to 6 April 2021 but payment was made on or after this date, the payment will not be subject to the new rules.
• Where a company is an intermediary, the definition has been extended to also include any company from which either the contractor has received a payment; or is entitled to receive a payment.