The IR35 legislation applies to off-payroll workers (OPW) or contractors operating through structures such as personal service companies and partnerships. The April 2021 changes will impact large and medium-sized organisations in the private sector. From this date, the responsibility for determining whether or not a contractor is an employee for tax purposes shifts to the end-user of their services, meaning they could now be liable for PAYE and National Insurance Contributions (NIC) on their population of contractors – a significant cost, administrative burden and talent retention risk. This was introduced to the public sector in 2017 and had some negative effects on the resourcing of some significant projects.
The purpose of the announced consultation is to engage with affected parties to address their concerns and ensure a 'smooth and successful implementation' of the reforms. The announcement makes no reference to or implication that the implementation will be delayed or cancelled and, in fact, specifically refers to making the changes in April as smooth as possible.
The review is set to be completed by mid-February so will clearly not be comprehensive. Furthermore, given that the changes are expected to raise significant amounts of revenue for the Treasury from what is effectively a tax anti-avoidance measure, it seems unlikely that this would be delayed.
Will anything change?
During December’s general election campaign the major parties all pledged, to differing degrees, to review the proposed legislative changes - but it's unclear to what extent they would follow through once elected.
HMRC are contacting large businesses and asking how they are preparing for the IR35 changes. This comes as part of the 'education and support' that they have committed to provide and indicates they are geared up for April 2020 as the implementation date.
Given the above, and the wording in this week’s announcement, the review may be no more than a tick-box exercise to honour the pre-election promise. There may be some changes to the proposed draft legislation, possibly small tweaks designed to reduce the administrative burden of the reforms, but it is unlikely that we will see significant amendments at this point.
We don’t know for certain what the government has in mind or how they will react to any representations made as part of the review, but our current view is that businesses should continue planning for April.
April is coming quickly. And if you haven't started preparing, we suggest you do so immediately.
For further information about IR35 or to book a demonstration of our market-leading technology solution, please take a look at our employment status tool.