Now’s the time to revisit your plans for the IR35 reforms
Tuesday, 20 October 2020
Last year, as a medium or large sized business or a contractor working through a company, you’d have struggled to avoid hearing about the impending IR35 reforms. We were all either prepared for or resigned to the significant changes the reforms were going to make when COVID-19 shook the economy. Then, on 17 March, mere weeks before their implementation, the IR35 reforms were delayed by a year.
That delay was probably a good thing and, for some businesses, this year has afforded them the extra time to plan ahead. For others though, the impact of COVID-19 has been so significant that IR35 reforms have either had to remain on the back burner, or, plans already in place are no longer relevant to their revised business model.
Inevitably, however, this issue is now coming back to the fore, pandemic or not, as there’s been no indication that the Government is minded to delay IR35 reforms further. The legislation has now been enacted, and businesses (and other engagers) are being asked to focus on the 6 April 2021 implementation date.
The importance of preparing for IR35, as a medium or large business, has been well documented. Finding yourself within its scope creates the incumbent need to check the labour chain, undertake due diligence on who pays your workers (if not yourself), to carry out status determinations, have processes for appeals, make payments under deduction and plan for the financial impact.
While we continue to work with clients to manage the process effectively, some of the added considerations afforded by COVID-19 are:
The IR35 reforms only apply to large and medium sized businesses as defined by the Companies Act, or for unincorporated entities, those who meet the ‘simplified’ test.
Two of the tests for determining size under the Companies Act are turnover and employee numbers, areas in which some businesses impacted by COVID-19 are seeing a decline, and the simplified test looks solely at turnover.
It’s possible that we may see businesses being unexpectedly outside the scope of IR35 as a result but there are complications surrounding how this is determined and the timing of the change. I would suggest speaking to your usual Larking Gowen contact if this is a concern.
Reliance on contractors
We’re seeing reports in the media about job losses and, if your business is one of those affected, perhaps you’ll need, in the short to mid-term, to engage more with contractors than previously envisaged. If so, IR35, which may not have been on the radar as a significant concern, may suddenly have become a significant factor in the engagement process (see above), particularly if you’re needing to start from scratch.
On the flip side, perhaps you’re able to keep your employed staff on, but now have less work for contractors and therefore the procedures required to manage IR35 status determinations, appeals process and payments will be less time consuming and easier to plan for.
It’s always been important to consider working practices as well as the written contract when determining whether a contract falls within IR35. Now may well be the time to consider how COVID-19 has changed working practices, if at all, and whether this impacts any status determinations that are being or have previously been undertaken.
Some roles will have been subject to very few changes whilst others will still have experienced significant change. Factors such as the place of work, the degree of autonomy, supervision, payment practices and financial obligations placed on the worker are amongst the things that may be relevant to a review.
In summary, the message is, however you’re affected by COVID-19 and however you think you may be impacted by IR35, now’s the time to revisit the subject and make sure that, when we do emerge into the spring of 2021, we’re ready for it!
If you’ve any queries about how you can plan for the IR35 reforms, please speak to your usual Larking Gowen contact. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email firstname.lastname@example.org.
You can also check out our dedicated IR35 page where we’ll be collating all our IR35 resources over the forthcoming months.