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Recruitment firm Hays has written to HM Treasury to demand that the roll-out of the IR35 private sector reforms be postponed for another year, as firms are already struggling to cope with the ongoing fallout from the Covid-19 pandemic.
The letter, dated 23 February 2021, calls on financial secretary Jesse Norman to “urgently consider” delaying the April 2021 start date of the reforms by a year on the basis that the pandemic is continuing to have a “material impact on the country’s workforce and companies need further support” in these challenging times.
“These reforms were due to come into effect on 6 April 2020, but were delayed due to the impact of Covid-19 last year,” said the letter, signed by Simon Winfield, Hays UK and Ireland managing director. “When the legislation was passed, and the date of 6 April 2021 was confirmed, there was hope that the economy would be in a better position. Unfortunately, this isn’t the case. We therefore call for an urgent review and delay of a year.”
At the same time, private sector firms are also having to grapple with the effects of Brexit, said Winfield, and the additional administrative burden that comes with having to comply with the incoming IR35 changes are a distraction that companies do not need at this time.
“The impact of Covid-19 has continued in severity and has been combined with the effects of Brexit,” he wrote. “It is more important than ever that the UK’s temporary workforce is supported and that businesses don’t have the additional burden of IR35. Currently, companies are being distracted preparing for the IR35 reforms, rather than focusing on either sustaining their businesses or looking at how they can accelerate their growth.”
The reforms that are set to come into force on 6 April will see medium to large private-sector companies assume responsibility for determining how the contractors they engage with should be taxed, based on the work they do and how it is performed.
Currently, it is up to contractors to decide for themselves whether the working arrangements they have in place with their end-clients mean they should be taxed in the same way as a permanent employee (inside IR35) or as an off-payroll worker (outside IR35).
An inside determination means the contractor is considered to be an employee for tax purposes, and so must pay the same income tax and national insurance contributions (NICs) as a permanent employee, but workplace benefits – such as paid holiday and sick leave – remain off-limits to them.
According to HM Revenue & Customs, shifting responsibility away from contractors for determining their tax status will help to clamp down on the problem of some individuals seeking to deliberately misclassify their engagements as outside IR35 to minimise their employment tax liabilities.
However, concerns have been repeatedly raised by business leaders and contracting stakeholders about how private-sector firms may struggle to deal with the additional administrative burden these changes will place on them.
According to Winfield’s letter, Hays’ call for a postponement and review of the reforms has the backing of both the Confederation of British Industry (CBI) and the Recruitment Employment Federation.
“The CBI understands that for the UK to be a competitive and dynamic marketplace, companies need to have access to the skills that will help them to generate growth,” the letter said. “It also understands that companies need a bridge to get through Covid-19 and Brexit. Delaying the implementation of the IR35 reforms would provide one example of such a bridge.”
Hays went public with the letter on 2 March, the day before the government’s Spring Budget, which the contractor community will be watching with interest to see if any planned changes to the IR35 reforms are forthcoming.
The company also confirmed to Computer Weekly that, at the time of writing, the letter had received no response from HM Treasury.
Hays is far from alone in calling on the government to consider delaying the roll-out of the reforms, with various contracting stakeholders making similar calls in recent months.
Read more about how some private sector firms are preparing for IR35
- With six months until IR35 tax avoidance reforms are extended to the private sector, a number of financial services firms are thinning out their contractor workforce – is that the way to ensure compliance?
- GSK contractors that have received “scaremongering” letters from HMRC, urging them to review their engagements with the company from an IR35 perspective, are being urged not to panic, as the missives have no legal basis, claim experts.
- Tech giant IBM has notified its personal service company IT contractors that they must switch to PAYE terms or use umbrella companies from the end of March, as the private sector races to achieve IR35 compliance.
- Lloyds Banking Group is to phase out its use of contractors that engage with the firm via personal service companies (PSC) in preparation for the IR35 tax reforms being extended to the private sector, Computer Weekly has learned.
- Despite notifying staff of its intentions to phase out contractors from its workforce in December 2019, IT contractors at the Bank of America are still awaiting clarification about what their future at the firm will look like, Computer Weekly has learned.
- Barclays is understood to have notified line managers via email on 30 September 2019 of its plans to phase out use of limited company contractors, ahead of the IR35 private sector reforms coming into force in April 2020.
- BP is understood to have begun notifying its self-employed workforce about its plans to terminate PSC engagements from 31 March 2020, in anticipation of the IR35 reforms coming into play the following month.
- Consultancy giant Deloitte confirms that contractors will only be able to engage with it via a third-party umbrella or employment agency after April 2021, as part of its IR35 compliance strategy.