Newsflash: IR35 changes postponed for 12 months

In Parliament yesterday Steve Barclay announced a deferral of the changes to IR35 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.

It was made clear that 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.

The changes were to have taken effect in just under 3 weeks 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 to focus on. Many businesses have already made significant progress with the changes and this will give further time for implementation.

For many this does not necessarily mean “pens down” just yet, as there will be many steps that need to be taken now to unwind or defer positions already taken.
 

What is this likely to mean now?

Some of the key steps to be taken over the next few weeks include:

• Project teams will have put a huge effort into IR35 transition over recent months and it will be important to capture the know-how gained, so this can be leveraged over the course of next year, with minimal re-invention.
• Engagers may wish to revisit more immediate policy decisions taken e.g. if you have decided to stop engaging with PSC contractors from 6 April 2020, you may choose to reconsider whether that policy should now be implemented from 6 April 2021.
• An extensive communications programme will be needed with all contractors, suppliers and clients.
• If contractors have already been re-engaged through, say, an umbrella company or agency, it is possible that organisations may wish to keep with that now, if only for convenience. However, some contractors may wish to reinstate their contracts through their PSCs and engagers need to reflect on whether there is any appetite to do so, only to go through all the same changes next year.
• Those who have renegotiated day rates with PSC contractors and agencies through which they are supplied (if any), will need to consider reinstating the original day rates. However, in many cases there may not be a need to remove clauses referring to withholding PAYE/NIC, since they will typically be operative only where there is a legal obligation to make such withholdings.
• Where engagers have sought contract addendums prohibiting supplier use of PSC contractors, these prohibitions could be deferred for a year. 
• For contractors whose PSCs are paid directly, new controls and payroll processes due for implementation may be paused, pending adoption in 12 months’ time.
• For any particular contractor/role that engagers have determined is deemed employed and where these contractors are now re-engaged through a PSC for a further year on the same terms, organisations may need to consider whether they require assurances relating to the PSC and the contractor’s compliance with IR35 under old rules.

Obviously this is a significant development and we appreciate there is very little time to adjust. Please speak to your usual Deloitte contact if you would like to discuss the implications more widely.
 

Contacts

James Warwick, Partner, 020 7007 1461
Hayley McKelvey, Partner, 020 7303 3940
Michael Nicolaides, Partner, 020 7303 8874
John Lewis, Partner, 0118 322 2658
Harvey Smith, Partner, 0121 696 8773
Helen Kaye, Partner, 0113 292 1316