On Monday 29 October, Chancellor Philip Hammond announced as part of his Autumn Budget announcements that the extension of recent IR35 rules to the private sector would be delayed until April 2020.
The news should come as welcome relief to many contractors who previously feared that the extension of the reforms would be rolled out much sooner.
As part of his Budget announcements, the Chancellor explained that implementing such changes too soon would prove problematic for both contractors and businesses. As such, it has now been confirmed that the changes will not only be delayed, but that only “medium-sized and large businesses” will be affected.
Mr Hammond said: “The Government has carefully considered all of the responses received and we are now in a position to propose extending rules similar to the April 2017 public sector off-payroll working reform to the private sector.
“Having listened to concerns, the changes for the private sector will be introduced from April 2020 for medium-sized and large businesses only,” he added.
What do the changes mean?
It is thought that the upcoming changes, which are expected to ‘mirror’ those of the public sector, will shift the responsibility for determining IR35 status.
This will mean that from 6 April 2020 onwards, any contractors engaged with a large or medium-sized client will have their IR35 status determined by that client. However, those engaged to any small businesses will be able to continue operating as per usual, and will remain responsible for determining their own status.
In instances involving medium-sized or larger businesses where IR35 is found to apply, the ‘fee payer’ will be held responsible for deducting any National Insurance Contributions (NICs) and PAYE at source from any income paid to the contractor.
According to reports, a further consultation into the matter is due to be published “in the coming months.”
This consultation is expected to further outline the new rules and how they will operate. So far, it has been confirmed that the definition of “medium and large clients” will be similar to that outlined in the Companies Act 2006. This Act requires at least two of the following conditions to apply before a company is deemed medium or large:
- It has a net turnover of more than £10.2 million.
- It has a balance sheet totalling more than £5.1 million.
- It employees 50 employees or more.
As part of the Budget announcements, a response to previous consultations has also been released, which documents as many as 275 responses from stakeholders of all shapes and sizes.
What should contractors do now?
Private sector contractors need to take note of the new changes and ensure they continue to take responsibility for determining their own IR35 status ahead of April 2020.
Contractors should also continue to carry out regular contractor reviews and ensure they are protected against any enquiries.