IR35: The Government Delays Implementation

Wednesday 25 March 2020

Prompted by the COVID-19 pandemic the government has announced that it will postpone the implementation of IR35 changes. The reforms which were due to take effect from 6 April 2020 will now be postponed until 6 April 2021 as the government steps up its response to the spread of COVID-19 and its economic impact.

What is the new IR35 regime and how will it apply?

The new IR35 regime will apply where an individual worker provides services to an end client through an intermediary (such as a partnership or a limited company). The aim of the legislation is to address tax avoidance by individuals who work in that way but who are, in truth, employees.

Currently, it is for the individual providing services through the intermediary to make a decision on their employment status. This results in many deciding that their working practices are not those of employees – leaving them responsible for paying their own income tax (PAYE) and national insurance contributions (NICs). As the individuals customarily pay themselves through dividends there is a loss of NICs to HMRC.

However, under the new regime an individual providing services through an intermediary, but who should be regarded as an employee, will be required to have PAYE and NICs deducted at source – in other words before the intermediary receives payment.

The new IR35 regime, when implemented, will affect private sector businesses which meet any two of the following criteria:

• An annual turnover of more than £10.2 million;
• A balance sheet which totals more than £5.1 million; and
• More than 50 employees.

When deciding whether the new regime applies HMRC suggests that an individual providing services through an intermediary will be classed as an employee if they satisfy the following criteria:

• Control – the individual is under the control of the end client, or the end client provides the machinery/ equipment and materials and sets the hours and place of work.
• Mutuality of obligation – the individual cannot turn down work i.e. they must work set hours or undertake set tasks provided by the end client.
• Substitution – the individual is not allowed to send a substitute to replace them if they are unavailable or, if they are able to provide a substitute, that substitute must be approved by the end client.
• Insurance – the end client maintains public liability insurance and the individual does not have any form of insurance.

What’s next?

The implementation of IR35 has been widely criticised and the postponement, whilst unexpected, comes as welcome relief given the challenges that the economy is currently facing.

If you have any questions on how these changes affect you, please email or call our Employment Law team today on 0113 207 0000.