New vote denies further delay to IR35 private sector reforms

MPs have failed to secure a further delay to the roll-out date of the upcoming reforms to the IR35 tax rules, governing contractors, which stakeholders have described as "disappointing".

The changes - which the government already deferred to April 2021 in response to coronavirus - will make large and medium-size private sector companies responsible for deciding how contractors they use are taxed. Under current legislation, contractors themselves are responsible for deciding if they should be taxed at source, in the same way as salaried employees (inside IR35), or as off-payroll workers (outside IR35). However, the government has said this system is open to abuse.

A late-stage amendment to the Finance Bill 2019-2021 asked MPs to support a further delay to the 2023-24 tax year, allowing the Treasury to complete a thorough impact assessment. However, the amendment did not win sufficient support.

Although new for the private sector, the legislation has applied to the public sector since 2017. Contractors as a whole reacted against the new rules, with many leaving the sector for good. Some estimates went as far as to say that nearly four-fifths of public sector IT projects were delayed as a result.

Before the government announced the delay to April 20201, there had been similar mutterings from the private sector, with contractors saying they will leave firms where they feel forced into an unfavourable tax situation. In February the Financial Times said that 50 of the 53 workers in Deutche Bank's change management team were considering leaving, having been asked to join the Bank as full-time employees - and take a 25 per cent pay cut in the process. 

Some organisations have revealed they are planning to scrap contractors altogether, due to the complexity of the new rules. Barclays, HSBC, Lloyds, RBS, BAE Systems and GSK have all said they will no longer use contractors who trade as limited companies, for fear of getting the assessments to determine whether or not they fall within IR35 wrong.

With the new date of the 6th April 2021 now set in stone, the government is urging private firms to prepare for the reforms; but the reaction against the legislation changes has not stopped.

John Bell, founder and senior partner at insolvency practitioner Clarke Bell, said the lack of a further delay was "disappointing," especially as firms are attempting to protect themselves from the joint impacts of COVID-19 and Brexit.

Seb Maley, CEO at tax consultancy Qdos Contractor, who has previously spoken to Computing about IR35, called the reforms "short-sighted" and stressed that companies should begin preparations "immediately."

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• Topics
• Government
• IR35
• Government
• IT contractors