The controversial reforms to off-payroll working rules will go ahead in April 2021 after MPs last night voted against an amendment which would have seen the changes delayed for at least two years.
An amendment to the Finance Bill — put forward by Conservative MP David Davis and Liberal Democrat MP Ed Davies — would have postponed reform until 2023-24, but the motion was defeated yesterday evening (July 1).
The changes will see every medium and large private sector business in the UK become responsible for setting the tax status of any contract worker.
Such reforms were originally set to take effect from April 2020 but the move was delayed by the government until next year in light of the coronavirus crisis.
More commonly known as IR35, the reformed rules will now be introduced in April 2021 as the bill, without the amendment to delay the rule change, will move to the report stage and third reading before being passed to the House of Lords.
Seb Maley, chief executive at IR35 specialist Qdos, said: “Despite concerns raised by a number of MPs, who rightly exposed the flaws of this legislation and made it clear they do not believe changes are necessary, it seems there's no turning back now.
“The reform is short-sighted and if mismanaged poses a risk not just to contractors but to hiring organisations and recruiters.”
Introduced in 2000, IR35 is an anti tax avoidance rule that applies to all contractors and freelancers who do not fall under HM Revenue & Customs’s definition of being self-employed.
Currently the off-payroll rules only apply to the public sector but HM Treasury has always maintained reform was necessary to address "fundamental unfairness" surrounding non-compliance, despite widespread calls for the changes to be scrapped altogether.
Last month a Lords select committee urged the government to "completely rethink" the IR35 rules in a damning report which found the changes would put too great a burden on businesses and was unfair on contractors.
The report found the support offered by the taxman fell "well short" of what was required, adding that large- and medium-sized businesses were being made responsible for enforcing a regime HMRC had "struggled with for 20 years".
Dave Chaplin, director of The Stop The Off-Payroll Tax Campaign, said the market now needed to prepare for the changes, adding that with careful planning, firms had “nothing to fear” and could hire freelancers compliantly.
He said: “Over the next year we will be seeing more clarity from the courts, as binding authorities are released – and these are likely to favour the self-employed and provide a legal bedrock upon which firms can compliantly hire contractors, without fear of later repercussions.”
John Bell, senior partner at insolvency practitioner Clarke Bell, said: “The news that off-payroll is going ahead in 2021 is very disappointing and contractors and the firms that hire them will be bracing themselves for a challenging time ahead.
“The pending legislation is already having a huge impact on the lives and livelihoods of contractors and we have seen a surge in the number of enquiries from contractors seeking to close down their limited companies as a direct result of the IR35 changes.