Is the IR35 reform in the private sector still going ahead in April 2021?

If we rewind to 17^th March this year, the Government announced they would be delaying off-payroll (IR35) in the private sector by 12 months. However, despite the delay, they have faced much scrutiny from professional bodies, temporary workers and employment agencies – because they all believe the legislation should be overhauled, or scrapped entirely.

With such opposition, is the Government likely to consider cancelling the amendments to IR35 in the private sector completely? This article will summarise what we know so far.

Off-Payroll legislation – an overview

IR35 has been around for what seems like an eternity. Initially rolled out in 2000, the legislation was designed to stop disguised employees underpaying tax. Since it came into effect, IR35 has undergone numerous changes and developments, and has often been criticised for being unfair and damaging.

Changes were implemented in April 2017 that meant going forward, contractors and freelancers working in the public sector were no longer able to determine their IR35 status. Instead, this became the responsibility of the end-client (the public sector organisation). These changes were commonly referred to off-payroll in the public sector, or IR35 in the public sector.

The public sector changes were not well received and the Government came under fire. However, this did not stop them announcing that the same changes would be rolled out into the private sector from April 2020 (off-payroll in the private sector).

Due to the COVID-19 pandemic, off-payroll in the private sector has been delayed for a year. The Chief Secretary to the Treasury, Steve Barclay, said that this decision is a “deferral, not a cancelation”, and therefore, the policy is now set to be rolled out in April 2021.

The proposed changes are “riddled with problems”

In April, the House of Lords Economic Affairs Finance Bill Sub-Committee’s report concluded that the proposed changes to IR35 were “riddled with problems” and needed a serious overhaul.

Lord Forsyth of Drumlean, Chair of the House of Lords Economic Affairs Finance Bill Sub-Committee, confirmed that the committee welcomed the delay to off-payroll as a result of the coronavirus pandemic. However, he then went on to say:

“Our inquiry found these rules to be riddled with problems, unfairnesses, and unintended consequences. The potential impact of the rules on the wider labour market, particularly the gig economy, has been overlooked by the Government. It must devote time to analysing all of this. A wholesale reform of IR35 is required.

The rules were deferred for a year because of the current crisis, but how prepared will businesses recovering from the crisis be to take on this extra burden on next year? The Government needs to think this through very carefully. We call on the Government to announce in six months’ time whether it will go ahead with reintroducing these proposals.”

Many are against the changes, including MPs and professional bodies

A movement lead by Conservative MP David Davis set out to delay off-payroll in the private sector changes until at least 2023/24, and on the 19th March in parliament, the Government discussed the 2020 Finance Bill. MPs including Sir Ed Davey, Meg Hillier (Chair of the Public Accounts Committee) and Alison Thewliss (SNP’s Shadow Treasury Spokesperson) were in support of the proposed delay.

However, despite the findings in the House of Lords report less than a month before, Jesse Norman, Financial Secretary to the Treasury, announced that the changes would be going ahead in April next year – as previously announced.

The Freelancer and Contractor Services Associates (FCSA) is the leading UK professional body that is committed to ensuring the supply chain of temporary workers is compliant and efficient. Julia Kermode, CEO at the FCSA, said the following about the Government’s decision to go ahead with the IR35 reform in April next year.

“I hope that Jesse Norman makes time to properly read and consider the House of Lords report which is a very eloquent and compelling summary of all the issues.

In recent years, we have seen HMRC push ahead many times with their own agenda for fundamentally flawed legislation and with arrogant disregard for compelling evidence of the damage that will result.  However, there are two further opportunities for the 2020 Finance Bill to be influenced and the supportive MPs will use these to the best of their abilities.”

Dave Chaplin, CEO at ContractorCalculator and Director at Stop the Off-Payroll Tax said the following about the Government’s decision to ignore the House of Lords report that highlights the issues associated with the IR35 reform:

“[The] outcome signals an entrenched and tin-eared approach by a Government that is failing to listen to the people, failing to heed the damning findings expressed by the Lords in its recent report, and failing to listen to the legitimate concerns of the senior members of its own Party”.

“Pressure has built as we head to the Committee and Report stages of the Finance Bill. We will continue to campaign on behalf of the UK’s contractors and freelancers to prevent the legislation entering statute in its current form. We do now, however, need thousands of contractors to engage with their MPs to turn this around.”

As things stand

Right now, changes to off-payroll in the private sector will be implemented in April 2021. However, a lot can change before then, and campaigners will continue to put pressure on the Government. If you have concerns about the legislation, please contact your local MP, as suggested by Dave Chaplin (CEO at ContractorCalculator). Whatever the Government decide to do, they will face a substantial campaign until the very end.

Churchill Knight will continue to keep you up to date with the latest developments. Please check our blog regularly. If you are a Churchill Knight client (either limited or umbrella) and you want to find out more about the IR35 reform and how it could impact you, contact us.