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Law360 (March 18, 2020, 2:26 PM EDT) -- Controversial changes to the U.K. payroll tax for freelance workers that were scheduled to start in April have been pushed back a year because of the novel coronavirus pandemic, the country's chief secretary to HM Treasury has told Parliament.
Chief Secretary Stephen Barclay announced the suspension Tuesday, emphasizing that the rule changes — now put off until April 6, 2021 — are needed to ensure that people "working like employees but through their own limited company" pay the same amount of tax as workers with direct employment contracts. He said the postponement is a "response the ongoing spread of COVID-19, to help businesses and individuals."
The changes to the off-payroll working rules, known as IR35, will require companies to deduct tax and social security payments for a contractor who is determined to be a de facto employee and to pay the employer's share of social security to HMRC. The rules will require companies to determine the employment status of all their contractors if they have an annual revenue of more than £10.2 million ($11.8 million), a balance sheet total of more than £5.1 million or more than 50 employees.
The rules have applied to the public sector since 2017 and on April 6 were due to expand to the private sector and the third sector, which includes organizations such as charities that are neither public nor private.
Representatives of the accounting industry had asked for more time before the rules took effect to ensure that businesses were adequately prepared for the changes, saying the rules were forced on the private sector before the impact on the public sector was fully known.
A fact sheet from HM Treasury last year said the changes to the rules don't constitute a new tax and don't apply to the self-employed, who are outside the scope of the legislation. HM Revenue and Customs has estimated that in the absence of change, fictitious contracting would cost the public purse £1.3 billion by the 2023 fiscal year. The tax authority has estimated that the 2017 rollout raised £550 million in additional revenue in its first year.
There are several ways to determine whether a contractor would be considered genuine by HMRC, including who is responsible for providing equipment and training and whether mistakes are corrected at the contractor's expense. If the contractor assumes these responsibilities, it is less likely the individual is covered by the IR35 rules, according to HMRC.
HM Treasury did not immediately respond to a request for comment on the rules' postponement.
The Institute of Chartered Accountants in England and Wales did not immediately respond to a request for comment.
--Editing by Neil Cohen.
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