IR35 news: MPs ignore calls to delay IR35 reforms until 2023

Controversial rules are one step closer to being introduced in April 2021

IR35 at a glance

IR35 is a piece of legislation designed to tackle tax avoidance from 'disguised employment' where self-employed contractors set up limited companies to pay themselves through dividends, which are not subject to National Insurance.

It was first introduced in 1999 by then-chancellor Gordon Brown. However, as part of the November 2016 Autumn Statement, current chancellor Phillip Hammond said that public bodies using contractors would be responsible for IR35 enforcement from 6 April 2017.

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It's thought that contractors could lose up to 25% of their money with IR35, according to ContractorCalculator, and as a result, almost 85% said they would consider leaving the public sector to work for private companies instead, according to a recent Qdos Contractor's survey.

The IR35 definitions are a little fuzzy, but if you work onsite with your client, who also manages you and supplies your equipment, and if you lead a team of employees that work for the client, IR35 will most likely hit you.

This is particularly worrying for government and public bodies, as they rely heavily on IT contractors, and many of those resources would be put at risk with the IR35 rules.

Head to our What is IR35? page for a detailed breakdown of the legislation.

Latest news: MPs ignore calls to delay IR35 reforms until 2023

UK MPs have ignored calls to delay the implementation of IR35 tax reforms by two years, which means the controversial rules are one step closer to being introduced in April 2021. 

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Conservative MP David Davis had campaigned for an amendment to the Finance Bill that would see IR35 be delayed until 2023/24, arguing that the "effects of the pandemic are going to be felt for longer than one year."

"Contractors are going to be hit with unnecessary cost, confusion, and uncertainty, just as many are getting back on their feet after coronavirus has wreaked havoc in the economy," Davis has said. 

However, despite the publication of a House of Lords report which called for a "complete rethink" of the proposed legislation, MPs failed to vote on the amendment on Tuesday, meaning the changes are one step closer to being introduced in April 2021 as the bill moves to the committee stage within parliament.

Speaking in Parliament yesterday, Jesse Norman, the financial secretary to the Treasury said it was “hard to see any genuine rationale” for delaying the reform beyond the deferral to April 2021, announced already due to COVID-19.

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"A delay would have very significant drawbacks," he said. "It would not address the intrinsic unfairness of taxing two people differently for the same work, it would extend the disparity between the private and the public sectors, and it would come with a significant fiscal cost, which other taxpayers up and down the country would have to make up."

Commenting on the move, Seb Maley, CEO of IR35 tax advisory firm Qdos, said he was not surprised the government had refused to listen to calls for a delay: "It has buried its head in the sand when it comes to IR35, continually ignoring compelling arguments that call for a rethink of the legislation.

"The coronavirus crisis also means raising tax receipts has become a priority for the Treasury - even if that means contractors may be wrongly forced into 'zero-rights employment' as a result of the reforms."

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More on IR35

3 Apr 2020

The IT Pro Podcast: IR35 - what happens now?

With the legislation now delayed until next year, where does this leave contractors and their employers?