The government has postponed controversial tax reforms to off-payroll working rules known as IR35 for the private sector until 2021, to help ease the strain COVID-19 is putting on businesses and individuals.
The decision was announced yesterday evening (17 March) in the House of Commons, along with an emergency £330bn financial package to bolster the UK economy that includes a business rates holiday, as well loans for struggling firms.
Speaking in Parliament on Tuesday evening, Chief Secretary to the Treasury Steve Barclay said: 'The government is postponing the reforms to the off-payroll working rules, IR35, from 6 April 2020 to 6 April 2021u2026in response to the ongoing spread of COVID-19 to help businesses and individuals'.
Here, Which? explains what you need to know about the move and what to prepare for in 12 months' time.
Crucially, the IR35 reforms have been pushed back and not cancelled - despite calls for the changes to be scrapped.
Mr Barclay said: 'This is a deferral, not a cancellation, and the government remains committed to reintroducing this policy to ensure people working like employees, but through their own limited company, pay broadly the same tax as those employed directly.'
The off-payroll working rules, or IR35, were introduced in 2000 to ensure that someone working as an employee but paid via a Personal Services Company (PSC) would be subject to similar levels of tax as other employees.
You fall 'inside' IR35 rules for tax purposes if you would be considered an employee of the company if the PSC wasn't in place.
In the past, it was up to contractors to determine if they fell inside IR35. But in 2017 the responsibility was shifted to public sector organisations hiring the workers - and the private sector is up next.
It has been estimated that non-compliance is set to cost the Exchequer more than £1.3bn a year by 2023-24 if it's not addressed.
The Treasury recently undertook a review of off-payroll working rules after criticism over the adverse effect the changes could have on both businesses and freelancers.
The findings of the review were It found that the reform will be a 'major change', but said it will still go ahead. However, a number of alterations were made to help organisations and contractors prepare, including:
The Treasury also said in March that information won't be used for new investigations into PSCs for tax years before 6 April 2020, unless there's reason to suspect fraud or criminal behaviour.
The Treasury confirmed to Which? this will shift to 6 April 2021 because of the delay.
The rules were also tweaked to only apply for services carried out after 6 April 2020. Which? also clarified with the Treasury that this date will move to 6 April 2021.
Previously, the changes were going to take in any work or payments received on or after 6 April, so this gives workers and businesses alike more time to prepare.
What hasn't changed is that the burden of deciding whether or not a worker is IR35-compliant will shift to the organisation contracting the work, rather than the worker themselves.
Companies will need to tighten up their hiring practices, and contractors may increasingly see themselves classified as within IR35.
Many contractors offer work to clients by setting up their own PSC. The client then hires the PSC, which in turn pays the contractor.
However, HMRC believes thousands of people working under these arrangements should actually be paying the same tax as employees.
There are three main groups of workers likely to be affected by these rules:
If you're not sure whether or not you, or someone you employ, would fall inside of IR35, there are three main 'tests' you can use to check:
If the IR35 rules apply, companies will have to deduct the relevant employment taxes and National Insurance Contributions from the person's pay.
The government says that genuine freelancers and self-employed workers won't be affected.
However, a consultation into IR35 that ran between 5 March and 28 May 2019 found 90% of the 170,000 affected contractors could stand to lose up to 20% of their income as a result of the changes.
That's because freelancers, as self-employed workers, would usually only be taxed on their profits, not their full earnings.
If considered to be inside IR35, both self-employed workers and their employers will have to pay more tax.
Other concerns included the unknown impacts of Brexit - and now coronavirus - on UK business and that many businesses would need more time to alter their payroll and tax systems.