Businesses may have welcomed the delay of the IR35 reforms but some have already laid off contractors and abandoned projects in anticipation of the changes.
Last night, chief treasury secretary Steve Barclay announced that the tax reforms would be pushed back by one year, less than a week after the measures were confirmed in the Budget.
Barclay confirmed the changes, which clamp down on tax avoidance by targeting companies who are, in practice, providing the same service as employees, would not go ahead in April.
John Chaplin, EY people advisory partner, said the vast majority of businesses had already completed the work ahead of the IR35 changes and may have offered permanent positions to some workers.
“It remains to be seen what those businesses will do now, but I doubt that they will all reverse the work of the last several months only to then go through the process again in the lead up to the deferred implementation date of April 2021.”
Sarah Stenton, tax director at law firm Stewarts said: “Many companies will have already undertaken a review of their workforce and, as a result of arguably an over-cautious approach, changed the employment status of its contractors to accommodate IR35.” These companies are unlikely to reverse these changes.
Delay is a welcome relief
Most industry figures have welcomed the move as it gives businesses additional time to revisit the reforms. Stephanie Wilson, partner and head of employment tax at BDO, said: “It is clear that this further delay to the start date does allow individuals and organisations time to fully prepare themselves for the new rules”.
There is some concern that Chancellor Rishi Sunak will shelve plans for the “light touch” on implementation. In a review of IR35, the government said people will not have to pay penalties for errors in the first year
However some industry figures think that the delay means the government will abandon this approach.
Andy Vessey, head of tax at provider of insurance and IR35 advice Larsen Howie, said: “We may see HMRC IR35 compliance activity ramped up in 2020/21 because of the fact that anticipated PAYE & NIC receipts arising out of the operation of the off-payroll rules will need to be recovered elsewhere.”
Barclay stressed that it was a “deferral, not a cancellation, and the government remains committed to reintroducing this policy.”
In recent months, business groups have been lobbying the government to suspend the IR35 changes, claiming they risk damaging the economy.