IR35 post COVID-19?

IR35 post COVID-19, will they extend the April 2021 deadline? Will companies change their qualifying criteria when classifying if a role is inside or outside of IR35?

Hopes that IR35 reform will be scrapped have faded after MPs initially approved the 2021 rollout in Parliament. Having been postponed by 12-months due to COVID-19, the House of Lords report described the legislation itself as unfair and recently tabled an amendment to the Finance Bill that called for the changes to be postponed by two further years, until 2023. This was overlooked in the House of Commons on Thursday 18th June, at the Committee Stage of the Finance Bill.

However, MPs will have another opportunity to table amendments to the incoming reform at the Report Stage of the Finance Bill, which is expected to be held in the the next few weeks. But while MPs from various political parties did make their concerns about the legislation and the changes clear to the Financial Secretary to the Treasury, IR35 experts do not expect a U-turn at this stage.

With IR35 reform in the private sector having been delayed by one year, most contractors assessed as inside IR35 by their client will still have to work through an Umbrella Company or as a PAYE temp. Leading up to the April 2020 initial deadline, most businesses took a long and costly process to make sure they were ready for this date. Most have shown reluctance to reverse their decisions to allow Limited Company (PCS) as it's only a delay, not a postponment.

Whether a company will give contractors the opportunity to work outside the rules having already placed them inside the legislation is also an important consideration. However, this research revealed 40% of contractors working inside IR35 had been blanket-assessed by their client did suggest a significant number of firms (32%) are now rethinking their strategy.

After it was announced that private sector changes have been postponed until 6th April 2021 due to COVID-19, insight produced shows 56% of contractors who have been placed inside the rules by their client, are working via an umbrella company or as an employee, intend or wanted to return to outside-IR35 working. 27% of contractors are unsure of what they will do, while 17% plan to remain in their current engagements.

The majority of independent workers surveyed (52%) said they had been placed inside the legislation or were working on the payroll through an umbrella firm or as an employee of their one-time client

This timely delay to IR35 reform in the private sector, which sees limited company contractors and consultants continue to decide if their working arrangement reflects self-employment or employment, also means these workers will carry the IR35 liability and the risks for 12 more months.

One thing is for sure, IR35 has and will change the landscape for contracting going forward. How we engage with candidates and clients will need a different approach, with COVID-19 changing the way we work with remote working this may change the some of the client’s interpretation of the role when qualifying if it’s inside or outside of IR35.