IR35 'off-payroll' reforms have been pushed back by twelve months, in order to better support small businesses during COVID-19.
Steve Barclay MP, The Chief Secretary to the Treasury, announced in Parliament this morning, that the review, which has been causing distress and anxiety to many of the self-employed, will be deferred, rather than stopped altogether, as a response to the spread of COVID-19 to "help businesses and individuals".
The deferral was made this morning, and may well have been encouraged additionally by the House of Lords calling for its postponement after questioning the validity of the approach entirely at a BEIS sub-committee yesterday morning, with Lord Forsyth of Drumlean warning the Treasury and HM Revenue & Customs that the bill could have a "very damaging effect on the incomes of many self-employed contractors".
The proposed change in tax rules meant that rather than individuals determining their tax status, it was down to the end client to decide whether a contract fell within IR35 rules, meaning the freelancer would be treated for tax purposes as an employee, although not benefit from holidays and sick pay. Opponents of the reform say the changes are poorly designed, and there is no clear cut definition of whether a self-employed worker is or is not within IR35, which has led to many industries putting a blanket ban on the use of contractors, rather than face the risk of additional tax and NI, or the overheads of identifying whether a worker is truly acting as a self-employed individual or not.
Some reports suggest that over half of freelancers were planning to walk away from self-employment when the new rules kicked in, and more than a third say their mental health has been negatively affected by the changes.
"For some this change in the rulings will have come too late" explains Mathew Knight, founder of mental health project Leapers, "as we've heard of many freelancers no longer feeling that the future of their career is tenable under these reforms, and either stepped away from contracting entirely or been working through the process of winding up their self-employed businesses and moving into perm or part-time roles". Many businesses have already made decisions to no longer work with freelancers and the self-employed, and it's unlikely those decisions will be reversed any time soon with increased pressure upon organisations dealing with their own employees not able to work, or putting contingency plans in place, with redundancies already on the cards for thousands.
Whilst the deferral may well come as a welcome relief for many, coronavirus is set to shake confidence even further for not only the self-employed, but small businesses generally - with the impact of social distancing and isolation taking its toll on emotional health and projects being cancelled. Over 75% of members polled in a Leapers study said they were concerned about work being cancelled directly due to the pandemic, and more than 46% of saying they are worried about the future of their business generally.
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