The proposed extension of IR35 Off payroll working rules to the private sector has been “postponed due to coronavirus until April 2021” 

However, that is not the whole story.  As expected, they ran out of time to pass such controversial legislation.   

IR35 is a set of rules applicable to subcontractors that look as if they are employees. It has been regulated by the contractors own companies since its inception 20 years ago. 

A few years ago, HMRC radically changed how IR35 rules were to be executed for subcontractors working in the public sector.  Called off payroll working rules they transferred the risks of contractors being deemed as employees to the engager, along with obligations to assess status and deduct taxes. 

Reluctance to take on these risks, has led to chaos.  Engagers were choosing not to do the assessment and hence not class anyone as a real contractor.  Some contractors were offered proper PAYE jobs, which then had mutual obligations and usually lower take home pay.  Others were deemed en-mass to be caught by the new rules and hence suffer PAYE taxes with no employment rights or expenses.  A few were allowed to work via umbrella agencies, where they may be able to gain a few employee benefits but essentially suffered the same.  

Despite this the extension of the rules to the private sector has been an object of Government.  As late as in last weeks budget papers they confirmed the new rules were still due to come into force in April 2020, although there was little time to make this law. 

HMRC recently clarified implementation would be for work done after 5th April, not payments made, as a work around for the delay.  There was nothing in the budget speech and the red book accompanying the budget just provided “recommendations” following a rushed “review”.  These recommendations were that engagers should not cheat by making decisions en-mass, but gave no further clarity on law or HMRC guidance, which they promised to exercise with a soft touch. 

The controversial new rules had been drafted, and were now rushed through the Commons, having already been postponed and delayed by the Election and Brexit; but the House of Lords were not to be rushed.   

The Lords insisted on a proper review and were not happy with the results, claiming HMRC’s position regarding the tax to be untenable, specifically as regards employment rights. They therefore demanded a 6-month delay for a proper review and the government has had to “postpone” the implementation because they are too busy with coronavirus. 

A further influence may have been the defence contractors who have been “sitting on the bench” waiting for non-IR35 contracts before consenting to go back to work and a telecoms company having to reassess their attitude when faced with no contractors to complete time critical projects. 

We trust if new rules are introduced next year that they will be fit for purpose – unlike the CEST tool produced by HMRC for use by engagers to determine status, that neglects to include the most common deciding factor in court decisions on the subject – Mutuality of Obligation. 

Three Cheers for proper common sense by the House of Lords Finance Bill Sub-committee.