Preparations for private-sector changes to IR35 are on hold whilst businesses address the impact of coronavirus.
Why has IR35 been delayed for the private sector?
Many businesses are currently suffering as a result of the global pandemic. Lockdown conditions, site shutdowns and a significant drop in sales are causing uncertainty across all industries.
Recognising the additional strain IR35 could cause for private firms, the government is pausing the rollout plan. In doing so, it helps business owners focus on their short term needs and cash flow.
What is IR35?
IR35 launched in 1999, aiming to clamp down on hidden employees. These single-director limited companies provide professional services to clients, but essential working for them as a traditional employee.
This off-payroll working meant that workers could enjoy the benefits of both regular employment, with the tax advantages of a company.
In 2016 the government went ahead with a clampdown on ‘off-payroll working’ within the public sector. As a result, public sector clients are responsible for determining whether workers fall under IR35 rules.
The reforms due in April 2020 would roll this out to the private sector. It would see medium and large businesses responsible for setting the tax status of contract workers.
Many express concerns that freelancers will suffer as a result of the rules. The extra costs could lead to businesses choosing not to work with them.
How does COVID-19 affect IR35?
The British Chamber of Commerce has recently announced that it expects the UK economy to slow to a growth rate of just 0.8% due to the impact of the COVID-19 outbreak.
Prior to the pandemic, growth was predicted to be around 1%. The recent changes indicate the weakest growth outturn since 1992. There is no doubt with figures like this that businesses may start to struggle in 2020.
It has already been widely reported that the impact of Coronavirus, even this early on, has led to many companies laying off staff. HSBC has announced it will cut 35,000 jobs worldwide in response to the downturn.
There has also been considerable focus on the impact all this has on self-employed workers who don’t have an employer to pay them sick pay. The self-employed may not receive any sick pay benefits and may instead have to depend on other benefits, or their savings.
Freelancers and the self-employed already have a significant amount of financial stress to contend with in 2020. Many have been vocal in explaining the fact they are often considered the first line of cuts when businesses must make savings.
That said, many in this industry have already put into place proactive plans to make their business legitimate under the new rules. Some businesses have sought to take on contract workers as full time employees.
Other freelance and contract workers have sought to be managed underneath an umbrella company who pays them as an employee, contracting them out to other businesses. This satisfies the taxation reforms.
In conclusion, we only need to read the stats to understand why adding extra financial pressure to businesses in the form of IR35 reforms at this difficult time is highly ill-advised.