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IR35 news: MPs vote in favour of 2021 rollout of IR35

The contentious rules have been approved during the committee stages of the Finance Bill

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 green-light 2021 rollout of IR35 reform

Amendments to the Finance Bill have now been approved by MPs, meaning that private sector IR35 reforms are on-course to be rolled out next year.

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The government was previously urged to delay the extension of IR35 reforms until 2023 due to the long-term effects of coronavirus. This is after ministers first delayed the introduction of the rule changes affecting contractors as the pandemic began to grip the economy earlier this year.

New clause 1 and new schedule 1, however, were passed without opposition during the committee stages of the Finance Bill's passage through parliament.

This means the private sector reforms have been given the go-ahead to be rolled out in April 2021, one year after they were originally due to be introduced.

The off-payroll working rules have been in place since 2000 for public sector bodies, and aim to ensure individuals working like permanent employees pay the same income tax and National Insurance contributions.

Critics have suggested the rules discriminate against the self-employed because contractors cannot legally enjoy the same benefits as full-time workers, including sick pay.

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Speaking during the passage of the Bill, financial secretary to the Treasury Jesse Norman said the reforms were successful in the public sector, and that changes to the original proposal have already been made following consultations with stakeholders.

Seb Maley, CEO of IR35 specialist Qdos, commented that the news is hugely disappointing, albeit unsurprising.

“If mismanaged, these changes pose a real threat to contractors, the recruiters who place them and the businesses that engage them," he said. "It’s therefore vital that companies impacted by IR35 reform continue their preparations and ensure they are in a position to make accurate IR35 decisions well in advance of the implementation date.

“Firms yet to consider IR35 need to immediately, while companies that banned contractors in anticipation of the reform need to understand that it can be managed with the right approach.”

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The IT Pro Podcast: IR35 - what happens now?
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The IT Pro Podcast: IR35 - what happens now?

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