Bringing up the subject of IR35 (Off-Payroll legislation to the more informed) at times like these might be the equivalent of someone pointing out that your grass needs cutting when your house has just been destroyed by a tornado, however it’s probably worth bringing this up again, if only to get it back onto everyone’s radar.
I wrote a couple of blogs on this subject about 12 months ago (DISCLAIMER - I am not an expert in employment law or taxation and none of the poorly written statements in this article should be interpreted as advice or expertise in any shape or form). That was a time when someone being classed as being in deemed employment seemed reasonably important. Obviously, the world has turned into a shadow of its former self since then and the horrific events that have unfolded in 2020 have understandably taken centre stage.
As a quick recap on my views 12 months ago, you can have a look at my original article from last year, but, after all the massive uncertainty created, there seemed to be some much-needed relief for everyone when the planned extension of the Off-Payroll Tax Legislation (IR35) in April 2020 into the private sector was postponed.
The postponement was until April 2021 but many of us assumed that this date would be extended further, or that the legislation changes would be scrapped altogether. There would be no way that the Government would see us come out of a global pandemic and spoil the good news by ploughing ahead with IR35 in the private sector. Would they?
Well, not only have the Government restated their intention to introduce the new legislation in April 2021, they’ve tightened the rules even further!
Amendments to the Finance Bill were passed by MPs in the summer of 2020 and, despite calls for the bill to be scrapped completely or at least delayed for a couple of years, it was confirmed that the new legislation would come into force from April 2021.
My personal experience talking directly to our clients and others about IR35 last year was pretty telling. In the main, they approached the mere mention of the term “Off-Payroll” or “IR35” in the same fearful way that pensioners look at snow. This drove a risk-free approach and left many supplier organisations with nowhere to go in terms of running a genuine service that took responsibility for deliverables and risk. This was evidenced by a number of large organisations, the ones with the most temporary contract staff, making sweeping decisions to cease engaging with anyone that would engage through a Personal Service Company.
One option that could be considered to keep non-permanent employees was the retention of personal service company contractors but engage them through umbrella companies. This left contractors with a degree of flexibility to adjust rates and roles between engagements although clearly without the full tax benefits.
Reading the amended legislation, it appears that the umbrella company itself can now be interpreted as the intermediary and, therefore, as the fee payer to the umbrella company, any consultancy or agency would have to deduct the appropriate tax elements before payment is made.
This obviously raises the value of having the umbrella company in the process at all and is likely to raise even more questions on how best to address the IR35 question as we move into early 2021.
This is likely to be seen as a further blow to the self-employed, many of whom have found themselves falling between cracks in terms of the various COVID-19 financial support schemes that have been announced this year.
Many IT contractors have taken the decision over the last 12 months to move into permanent roles and the new legislation, if the current timescales are held to, will almost certainly lead to even more decisions like that being made in the next three or four months.
As well as this, the uncertainty this will now bring (again) to end organisations and suppliers alike seems unnecessary and unwelcome given what we’re all still going through.
There is a way through this, although I’ll repeat my plea from last year that it needs suppliers and their clients to work together to achieve the right outcome.
If that doesn’t happen, I fear that April 2021 might be the most landmark point yet in this long, tortuous argument between industry and HMRC.