HMRC updates IR35 rules with two months to go – what does this mean for contractors?

HMRC has announced an update to how off-payroll working (IR35) rules will work from 6 April 2020.

It said this is to give businesses more time to prepare. But with two months to go before new rules are introduced, should contractors expect to see any further changes?

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The pay date has been moved for businesses

Upcoming IR35 reform means that from April 2020, small and medium-sized private sector businesses will be responsible for determining a contractor’s IR35 status, rather than the contractor themselves.

And now, HMRC has relaxed the rules around IR35 payments in a bid to help these small and medium-sized businesses prepare for April’s changes.

Originally, the new rules would have applied to any payments made to contractors on or after 6 April 2020, regardless of when contractors carried out the work.

HMRC has updated the rules so that businesses only need to apply the new rules to payments made for services provided on (or after) 6 April 2020.

HMRC said this “means organisations will only need to determine whether the rules apply for contracts they plan to continue beyond 6 April 2020, supporting businesses as they prepare.”

What does this mean for contractors?

A government review into the upcoming IR35 rules is set to conclude at the end of February (update: the Treasury has now published its review, announcing a 'softer approach' for the first 12 months).

HMRC said that a “common issue raised over the course of the review has been businesses’ concerns over what payments the rules apply to and from when.” HMRC claims the government “has listened and taken action early to give businesses certainty and more time to prepare”.

But Tim Stovold, partner at Moore Kingston Smith, told FT Adviser: "This announcement ahead of us seeing the full outcome of the government review into this area does dash hopes of the whole regime being deferred by a year which is what business and contractors had been hoping for."

Andy Chamberlain, Deputy Director of Policy at IPSE, said: “This minor amendment will be little comfort, therefore, to the many contractors already being laid off by companies who are panicking about the approaching changes. We are still campaigning hard for the government to halt the IR35 changes while a full and independent review is carried out into the very serious risks for hundreds of thousands of contractors, the businesses they work with and the economy as a whole.”

The House of Lords has launched a separate inquiry

On 4 February the House of Lords’ finance bill sub-committee announced a separate inquiry into IR35 reform.

This inquiry has a broad remit – it covers existing measures in the public sector, the impact of the new rules on organisations, as well as how workers’ tax status is determined. More specifically, it’s seeking answers to questions like:

• has the impact of the extension of the rules to the private sector been adequately assessed?
• does the CEST require improvement? If so, how might it be improved?
• in your opinion, are there better or simpler ways in which the objective of the new rules might be achieved?

Seb Maley, chief executive of IR35 specialist Qdos, said: "While we welcome this inquiry into IR35 reform, we can’t help but wonder why it wasn’t held months ago. Nonetheless, it's an opportunity for contractors, agencies, businesses and experts to have their voices heard.”

But he also urged businesses, including recruiters and end-clients, to continue preparing for the change.

IR35 is a complex topic – speak to a professional if you’re not sure about how the April 2020 changes could affect you.

What do you think about HMRC updating the rules with two months left until their introduction? Let us know in the comments below.