Off-Payroll Reform Postponed – What does this now mean for the gig economy?

18th March, 2020

Many off-payroll workers will be waking up this morning to the monumental news that Government at the 11th hour has decided to postpone the IR35 Off-Payroll Reform in the Private Sector.

The original reform date was set to be implemented on 6th April 2020 and this will now take effect on 6th April 2021 as announced in Parliament by Stephen Barclay The Chief Secretary to the Treasury last night – cue widespread celebration from our gig economy workers – may I add that this was absolutely the right decision in my opinion as well.

Why did the reform get postponed?

Quite simply this was in response to the Global COVID-19 epidemic that is sweeping the world and for no other reason. I have seen on LinkedIn last night and this morning, contractors toasting victory and under the belief that this reform will now somehow silently disappear into the sunset. My advice is you couldn’t be more wrong.

Only last week in the Budget announcement 2020, was it confirmed that Government would be pushing ahead with the Off-Payroll Reform. This decision was made whilst there was a simultaneous House of Lords enquiry into the Off-Payroll Reform and many industry bodies campaigning to abolish this completely or at least delay this so business could take more time to be ready. Yet still Government pressed ahead with this. Had we not faced the reality of COVID-19 taking a sharp upturn in cases then we would be sat here this morning with the Off-Payroll Reform having been passed in Parliament last night. So the Off-Payroll Reform will make its long-awaited debut in April 2021 and Stephen Barclay was very clear about this.

So what does this now mean for the industry?

Very much as we were? Blanket Policy Decisions now longer legally applicable? Contractors determining their own IR35 Status?

Yes to all of the above to many degrees. IR35 in its current guise does allow contractors to determine their own IR35 status, and as nothing is now changing then this will remain the case. This enables those Contractors to operate through their own PSC’s or Ltd Companies (dependent on your terminology) and operate outside IR35 and be paid as such.

However, as we were literally a matter of weeks away many businesses had carried out IR35 Status Reviews – in other words, contractors that had been fairly assessed for IR35 purposes and fell inside IR35. What does this now mean for those individuals? The reality is that HMRC have long stipulated that EVERY CONTRACTOR SHOULD ASSESS THEIR IR35 STATUS ON A CONTRACT BY CONTRACT BASIS, so whilst this responsibility passed to the engaging client in light of the impending reform, the results of these fair assessments are that they are “deemed employees” for tax purposes.

Should I operate as self employed?

Should those contractors now decide to operate as “self-employed” once again the very real reality is that should HMRC challenge their status in the future, they will more than likely win. HMRC is also aware of this as well. I think the soft landing approach that we were promised in the Off-Payroll Reform had this commenced on 6th April 2020, will not apply next year, and part of that was retrospective action not being taken against contractors unless they believed deliberate tax avoidance was in place. Well, I hate the be the harbinger of doom here, but knowing that your contract fell inside IR35 and in light of the Reform delay returning to operate outside IR35 and paying yourself as such, is very much deliberate Tax Avoidance. So those individuals have a question to ask themselves, be compliant or take the risk? Remember your IR35 Status can change on a contract by contract basis. hence the requirement to have your IR35 Status assessed on a contract by contract basis!

For those individuals that were affected by a Blanket Policy decision, this is very good news. The mere fact that this was a non-compliant approach period, says enough. I wonder now with the fact that business does have an additional year before the reform comes into Law will those businesses that proceeded with a Blanket Policy approach decide to actually assess IR35 fairly? That is a question only they can answer. Again this additional year allows us to demonstrate that assessing IR35 fairly is a sensible approach and one that really benefits every business.

Where do businesses now stand?

HMRC have been very vocal regarding liabilities being passed down the supply chain, The Criminal Finance Act 2017 as an example, they have openly stipulated that they now have the power to source unpaid liabilities from whoever is in the supply chain, will this still be the case?

The simple truth is that we as an industry have been given an olive branch to very much get this right to the best of our abilities. This means businesses assessing IR35 fairly and protecting our gig workers. Those of us who are in Payroll, Accountancy and Recruitment Sectors, it’s ensuring that we are educating our gig workers with the facts of IR35 legislation. The real elephant in the room in the build-up to the Off-Payroll Reform was not the reform itself, it was that for the last 15 years nearly 80% of contractors had no idea what IR35 really was and how it affected them. All of a sudden, a change in how the IR35 legislation is to be determined and suddenly its armageddon. Gig workers themselves need to understand their responsibilities as well. IR35 has been part and parcel of our market for 20 years. It should be the first thing we are advising off-payroll workers about. Its time we made this happen and is a responsibility we all share now and going forward, let’s get this right!

Whatever the next few months hold for the gig economy, one thing we can be sure of IR35 is not going anywhere.

Be safe and be well everyone!