IR35 - Steve blog - April 2020 - 782x504

IR35: Businesses have an extra 12 months to prepare – but they must use that time wisely

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Steve Deverill, Head of Business Transformation & Technology Practice at Eton Bridge Partners, assesses the implications of the Government’s decision to delay reforms to IR35.

Amid the slew of genuinely radical measures introduced to mitigate the impact of Covid-19 on the UK economy, the Government’s deferral of reforms to IR35 for 12 months may have appeared minor. Nevertheless, it carries significant implications and challenges for many businesses in this country.

Interims, and the organisations that hire them, now have until April 2021 to prepare for the tax changes, and it’s imperative that they use the time wisely.

The delay is a sensible decision by the Government and is also welcome news. Not least because it gives all involved an opportunity to re-evaluate some of the behaviours and processes that were exhibited in the countdown to the aborted April 2020 deadline.

A worrying number of companies were taking a blanket approach, to bring all their Interims inside IR35.  Many of these decisions were made based on a lack of clarity and understanding – there were many different guidelines in place between tax advisors, IR35 legal professionals and HMRC alike.  This caused a fear of getting it wrong and therefore the panic decisions forcing a blanket approach.

More time was needed for businesses to understand the real risks of making an incorrect assessment as it can cost them greatly. Outside of financial risk, operational, legal and reputational damage can also arise if businesses do not prepare for the change appropriately or early enough.   All businesses now have an opportunity to re-examine their preparations and ensure their assessments and processes are both appropriate and robust.

One inescapable conclusion is that there will be no soft launch in April 2021, as previously suggested by HMRC. The Government will want to recoup as much of its massive outlay on Covid-19 mitigation strategies as possible, so businesses should anticipate a strict, prompt implementation of the new rules.

It’s important that companies review their contractors on an individual basis, evaluating their role and skills, rather than being clumped together inside IR35.

Time should be devoted in the next 12 months to planning more articulate and sophisticated processes that define, and differentiate between, roles that fall inside and outside IR35.

At the same time, people who operate on a consultancy or interim basis should ensure they are fully prepared for the significant tax changes and the impact they will have.

The Treasury and HMRC also have extra time to listen to recommendations before the reintroduction of the new rules.

It is to be hoped they take into account the fact that, when the process of recovery from the profound impact of Covid-19 gets under way, flexible resources will continue to be incredibly important to businesses.

Many will be required to fill permanent roles temporarily, possibly from remote locations, as members of staff are forced to stay in isolation or to care for members of their family.

Additionally, we will see a rise for the invaluable expertise and knowledge of Interims in fields such as business continuity, financial re-structuring, IT change management, turnaround/ transformation and outsourcing.

It will be essential, rather than desirable, for organisations to have contingency plans in place to cope simultaneously with both the impact Covid-19 has had on the business landscape and that new, hard April 2021 IR35 deadline.