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Too little, too late? IR35 changes announced.

10 February 2020

In a welcome but late move, HMRC confirmed last week that the imminent IR35 reform will only apply to supplies of labour provided on or after 6 April 2020.

IR35 applies where an individual provides their labour to an end user via their own personal services company or other intermediary (“PSC”), in circumstances where if the individual were hired directly they would be an employee of the end user.

In a fundamental change to the current IR35 rules, medium and large sized end users (rather than the individual) will be required to determine whether IR35 applies for any payments made on or after 6 April 2020. If IR35 applies, the fee payer (generally the entity which has the contractual relationship with the PSC) must deduct PAYE and employee NICs from the fees it pays to the PSC as well as paying employer NICs and, where appropriate, the apprenticeship levy.  Our article on the IR35 reforms provides more information.

The HMRC’s latest announcement confirms that the new IR35 rules will only apply where the individual also provided their labour to the end user on or after 6 April 2020. In other words, the IR35 reform will not apply if all the work was done pre 6 April 2020 – even if payment for the work is made after this date.

With less than two months to go before the change takes effect, many businesses will consider the HMRC’s announcement and their recently issued detailed guidance too little too late as they grapple with the significant administrative burden and cost implications of the reform.

In addition to the Government’s own review into IR35 (which is expected to conclude mid-February) the House of Lords launched an inquiry into IR35 last week.  However, neither of these processes are expected to result in any postponement to the changes.  

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