In a shock move, it has been announced by Chief Secretary to the Treasury, Stephen Barclay, that the off-payroll IR35 rules, which were meant to be rolled out to the private sector from 6 April 2020 will now be delayed for twelve months due to the Coronavirus.
The announcement was made in the House of Commons by the minister in response to questions about how businesses are going to be helped through the current crisis.
Mr Barclay said the regime, which would have required large and medium-sized organisations to determine the employment status of any contractors they engaged, would be deferred, but reiterated that the government remained committed to its introduction from 6 April 2021.
It is expected that the change will be reflected in the Finance Bill to be published later this week.
In his statement, the minister said:
"The government is postponing the reforms to the off payroll working rules, IR35, from April 2020 to 6 April 2021. Government will therefore will not move the original resolution tonight, but will shortly table an additional resolution confirming that we will reintroduce the off payroll working rules provisions by amending the [finance] bill with a commencement of 6 April 2021.
"This is a deferral in response to the ongoing spread of Covid 19 to help businesses and individuals. This is a deferral not a cancellation and the Government remains committed to reintroducing this policy to ensure that people working like employees but through their own limited company pay broadly the same tax as those employed directly."
The Chancellor, Rishi Sunak, had confirmed only as recently as 11 March 2020, in his Budget, that the off-payroll rules would commence for the private sector on 6 April 2020, so this is quite a U-turn, albeit a temporary one.
An official statement confirming the deferment has been issued by the Treasury
The delay will come as a great relief for many businesses who were struggling to prepare for the new process. A twelve-month deferral will give them more time to put in place all the necessary procedures and practices required.
And although the government had recently confirmed that the off-payroll regime would be the subject of a "soft landing" in its first year, businesses remained concerned about the impact on their supply chains.
There was also speculation that HM Revenue & Customs did not have the necessary resources to monitor the regime from April 2020, due to Brexit preparations, so delaying the start date may give the department extra time to gear up for its introduction.
Due to the lateness of the announcement about the deferral, just 20 days before the regime was meant to be introduced, some businesses will have already made commercial decisions about how they intend to operate post 6 April 2020. Some of those decisions may not be changeable.
However, the twelve-month postponement provides an opportunity for the government to review the proposed rules in light of the forthcoming House of Lords report into off-payroll working. The Lords have been interested in hearing expert evidence on the negative aspects of imposing employment status test obligations on businesses and other organisations in the private sector.
The regime was imposed on the public sector a couple of years ago.
In light of the current Coronavirus pandemic, it cannot be taken as certain that the off-payroll rules will actually start from April 2021, although we must assume so, and further announcements about the regime will be of great interest to those businesses who are most likely to be affected.