The taxman has shifted the start date for the changes to the off-payroll working rules in a bid to give businesses more time to prepare.
HM Revenue and Customs announced today (February 7) the changes to the rules, more commonly known as IR35, would now apply only to payments made for services provided on or after April 6 of this year.
Previously the rules would have applied to any payments made on or after April 6 2020, regardless of when the services were carried out.
Today's change means businesses will only need to determine whether the rules apply for contracts they plan to continue beyond April 6.
HMRC said the issue of which payments the rules applied to was a key concern raised by businesses and contractors during its review of the changes and their implementation.
Tim Stovold, partner at Moore Kingston Smith, said: "Although this is a helpful relaxation of the rules, this last minute tinkering with the detail is not helpful for businesses already struggling to prepare for these changes without adequate guidance being released from HMRC.
"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."
The government’s review, which is set to conclude this month, was branded “hasty” and “meaningless” by the industry when it was launched in January.
The controversy surrounding the changes had prompted chancellor of the Exchequer Sajid Javid to pledge a review of IR35 as part of the Conservative party’s manifesto in the lead up to the general election.
At the time Mr Javid said he wanted to make sure the proposed changes were “right to take forward” but when the Treasury announced the review last month, its scope only covered the implementation of the changes rather than whether they should go ahead.
The House of Lords’ finance bill sub-committee has since announced it is to conduct its own review of the rule changes, including the impact of the shake up and whether there is a simpler way in which to meet the government’s objectives.
IR35, which was introduced in 2000, is an anti tax avoidance rule that applies to all contractors and freelancers who do not fall under HM Revenue & Customs’ definition of being self-employed.
From April 2020, every medium and large private sector business in the UK will become responsible for setting the tax status – or IR35 – of any contract worker they use, as is already the case in the public sector.
Businesses and contractors have fiercely opposed the changes to the rules, arguing they would increase a business’ contractor costs by up to 14 per cent and would limit the tax freedom currently enjoyed by the self-employed.
Tax experts have predicted IR35 could reduce a worker’s net income by up to 25 per cent, costing the typical limited company contractor thousands of pounds in additional income tax and NICs.