IR35: 'no further delay' to April start date expected

Out-Law News | 06 Jan 2021 | 12:00 pm | 1 min. read

No further delays are expected to the IR35 tax changes being introduced in April, despite the latest UK Covid-19 lockdowns, according to a tax expert at Pinsent Masons, the law firm behind Out-Law.

Penny Simmons of Pinsent Masons made the comments after attending a meeting with HM Revenue & Customs (HMRC) to discuss late amendments that are being made to the new IR35 rules to ensure that the rules operate as intended.

"HMRC remains committed to resolving the current issues with the definition of intermediary in the new legislation and has confirmed that it will introduce changes in Finance Bill 2021," she said. "Guidance on the further changes is expected to be published in February prior to publication of the next Finance Bill."

Simmons Penny

Penny Simmons

Legal Director

If they haven't already, businesses should urgently review the impact that the changes to IR35 are likely to have on their engagements with contractors and agencies.

"Never say never, but there was no indication from HMRC that the government has any intention of delaying the introduction of the new IR35 rules beyond April - everyone is working towards a 6 April start date," she said.

The IR35 rules require that 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 of the engaging business. Currently, where a private sector business engages a contractor through a PSC, liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC.

The rules are due to change from 6 April 2021. From this date, engaging businesses will be made liable for determining whether the IR35 rules apply. They will also be required to operate PAYE and pay employers' National Insurance contributions. The changes will not apply to small businesses which engage contractors through PSCs.

The changes were originally due to take effect last April, but the start date was delayed a year as a result of the coronavirus pandemic.

Legislation introducing the changes to IR35 was included in Finance Act 2020. To protect against possible avoidance planning, a late amendment to the definition of intermediary was made, which would have broadened the definition so that the rules would have applied where a worker provides services to a business through the intermediary despite having been subject to PAYE on all of its income from the engagement. Since realising the effect of the new definition, HMRC has been working with stakeholders to find a solution and ensure that the rules operate as intended and cannot be easily circumvented by artificial planning structures.

"If they haven't already, businesses should urgently review the impact that the changes to IR35 are likely to have on their engagements with contractors and agencies and ensure that they have processes and procedures in place to meet their new compliance requirements," said Simmons.