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IR35 tax reforms to be delayed until 2021 due to COVID-19

Darwin Gray LLP
March 24, 2020

Due to the outbreak of COVID-19, the UK Government has announced that the IR35 reforms will be delayed for a year until 6 April 2021, less than a week after the new measures were confirmed in the budget.

It was planned that IR35 tax rules would be extended to medium and large companies in the private sector from 6 April 2020. This meant that if these organisations engaged individual contractors through personal service companies (PSCs), then they would be responsible for assessing the individuals’ employment status for tax purposes. This rule currently only applies to public sector organisations.  

In practice, it means that if a contractor’s employment status indicates that they aren’t self-employed but are in fact an employee, then the organisation engaging them will be responsible for deducting tax and national insurance contributions on the payment made to the PSC. Currently, the PSC bears this responsibility.  

The Government has confirmed that this decision is a deferral, not a cancellation, of the policy. Given the economic challenges that organisations may face in light of the Coronavirus outbreak, this will be welcome news for the business community. The delay gives medium and large private sector firms extra time to prepare for the tax changes, so they can focus their efforts on dealing with the current COVID-19 crisis.  

The new rules will not be extended to organisations which are “small” companies under the Companies Act 2006, meeting at least two of the following criteria:

  • The annual turnover is no more than £10.2 million
  • The balance sheet total is no more than £5.1 million
  • There are no more than 50 employees

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