Legal update: Delayed, not cancelled: the next steps for IR35

On 17 March 2020 the government answered the REC’s call to delay the IR35 tax changes until April 2021.

So, if you’re dealing with a client in the private sector, they don’t have to do anything about IR35 at the moment. If the client is a public authority, the rules that took effect in April 2017 remain in place. 

Some businesses have already prepared for IR35. And some private sector clients have decided that some roles are ‘inside IR35’. So what should recruiters do?

From a legal perspective

The rules aren’t changing until April 2021. Neither the client’s obligation to provide a status determination statement (SDS), nor the fee-payer’s obligation to deduct tax and national insurance, apply for the time being. So, even where a client has determined that a role would have been inside IR35 from 6 April 2020, there is currently no obligation on the fee-payer to make any deductions before paying the Personal Services Company (PSC). 

“The current rules will apply up to, and including, 5 April 2021.”

From HMRC’s perspective

HMRC said that SDSs made before 6 April 2020 will have no standing. It also said that it will not consider any SDSs made if it opens an investigation into a contractor in the meantime. 

Some contractors may want to continue to work through their PSCs. Agencies and clients can agree to this, but some may choose not to. The agency can continue to pay the PSC gross and will not be liable for their failure to comply with IR35 unless, under existing legislation, it can be shown that they are facilitating tax evasion.

Blanket decisions

Some businesses decided not to allow contractors to work through PSCs past a certain date. They may continue with this ban, or may now allow those contractors to work through PSCs until the changes in 2021. Some contractors may choose to stay on PAYE if, despite the lost income, they decide it is more beneficial to be entitled to rights such as sick pay and holiday pay. 

Note that this is a delay, not a cancellation. All other legal changes resulting from the government’s Good Work Plan came into effect on 6 April.

Agencies and clients will still have to implement the IR35 changes by April 2021. The REC will support members to do this and our IR35 hub on our website is there to help our members.

Lewina Farrell, Legal Advisor at REC

Image credit | iStock

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