IR35 private sector reforms: HMRC confirms last-minute tweak to incoming off-payroll rules

A last-minute tweak to the incoming IR35 tax avoidance reforms will make scant difference to the one in 10 contractors who have already left their roles, it is claimed.

A joint statement from HM Revenue & Customs (HMRC) and HM Treasury confirmed today that the IR35 rules will now only apply to payments made for services provided on or after 6 April 2020, whereas previously the rules applied to any payments processed after this date.

To put this into context, it is known that the private sector organisations caught by the IR35 reforms have been rushing to ensure the contractors on their books submit their final invoices before the end of February so the payments are cleared before the start of the new tax year on 6 April 2020.

This is also the date when the IR35 reforms are due to come into force for medium to large private sector organisations, which is when they will assume responsibility for determining how the contractors they engage with should be taxed, based on the work they do and how it is performed.

If the organisation determines that the work an individual does means they are working in the same way as a permanent, salaried worker and should be taxed as such, they will be classified as “inside IR35”, whereas if they are determined to be performing the duties of an off-payroll worker, that means they are “outside IR35”.

Under the previous system, if an outside IR35 contractor were to submit an invoice after 6 April 2020 for work they did before the reforms came into play, for example, the organisation would need to re-assess the contractor to see what side of IR35 the work they did falls under.

“[The change] means organisations will only need to determine whether the rules apply for contracts they plan to continue beyond 6 April 2020, supporting businesses as they prepare,” said the government statement.  

The change is being introduced, the statement suggested, in response to feedback the government has received so far to its recently announced review into the reforms, which is geared towards ensuring the roll-out goes smoothly. 

“A common issue raised over the course of the review has been businesses’ concerns over what payments the rules apply to and from when. The government has listened and taken action early to give businesses certainty and more time to prepare to ensure the smooth and successful implementation of the reforms that come into force in April,” the statement added.

News of the tweak has been welcomed with a collective shrug of the shoulders by tax experts and contracting stakeholders, who have described the move as “too little, too late” for many of those affected by the reforms.

“This minor amendment [to the IR35 reforms] will be little comfort to the many contractors already being laid off by companies which are panicking about the approaching changes”

Particularly as many firms have sought to side-step the reforms by taking steps to phase out the use of contractors from their workforce, meaning they will not need to take on the responsibility for determining how those individuals should be taxed.

According to data compiled by contractor-focused online accountancy firm InniAccounts and its sister organisation Offpayroll.org.uk, around one in 10 contractors have already terminated their contracts ahead of the reforms coming into play.

“Generally, most contracts require one month’s notice, which was the end of January. So it’s too late for many contractors who’ve already ‘left the building’,” said the company’s CEO, James Poyser.

“For those left, it grants clients just three more weeks – contractors need to give notice at the end of February to get all work done by the end of March. So it’s fair to say it adds to the mess.”

That is a view shared by Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), who said the government would be better off delaying the start date of the reforms rather than making late-in-the-day tweaks to the IR35 rules now.

“As we approach the April deadline, HMRC is starting to realise just how difficult these rules will be for businesses to implement. Delaying the start date to when the work is actually performed, rather than paid for, is a sensible move, but it doesn’t address the fatal flaws in the legislation itself,” he said.

“This minor amendment will be little comfort, therefore, to the many contractors already being laid off by companies which are panicking about the approaching changes.”