IR35 has been postponed for 1 year. It's official. Chief Secretary to the Treasury, Steve Barclay, has announced that IR35 will be deferred until April 2021. This is very welcome news for freelancers who have already been directly and indirectly impacted by IR35.


Quick reminder. What is IR35? 

IR35 is a piece of government legislation that allows HMRC to collect additional payment where a freelancer (contractor) is treated as an employee in all but name. Essentially, it is the responsibility of your client (only companies whose turnover is greater than 10.2 million) to determine if you should be treated and taxed as a freelancer or as an employee. To determine this, they used an online tool called CEST to input information about you and the job and CEST provides a result. 

How was it impacting freelancers? 

IR35 was due to launch this April (2020) in the private sector with an update to the CEST tool in March. However, the introduction of IR35 was already impacting freelancers. Here are a few of the issues: 

  1. The CEST tool was producing results that placed some freelancers inside IR35 (ie: to be treated and taxed as an employee) when clearly this was not the case.  
  2. Companies were starting to roll out a 'blanket' policy of not hiring freelancers just to avoid the hassle, admin and paperwork that comes with IR35. 
  3. Companies were unsure how to use IR35 and inputting incorrect information which meant the freelancer had to accept the employee status or turn down work. 

IR35 Postponed for One Year Tax

However, on March 17th, speaking in the House of Commons, HM Treasury Minister Steve Barclay announced that given the current circumstances and COVID-19, HMRC would delay the roll-out of the changes to IR35 in the private sector for one year until April 2021.


What does the postponement mean?

The next step for government is to make sure they use this time to properly address the real impact IR35 is having on freelancers. Ideally, we would like to see IR35 abolished completely and an alternative method put in place to solve the issue. If the early signs of IR35 are anything to go by, there is a lot of work to be done over the coming months. 

Companies who have already invested a huge amount of time and money will have to make a decision whether to revert back to using freelancers as they did previously or stick with their new policies. It's not an ideal situation for anyone but, for freelancers, it's a welcome piece of news during a time dominated by coronavirus updates. 

One of our members, a self-employed consultant, has shared her story with us. She has asked to remain anonymous so not to incur further discrimination. 

I swapped over from being a sole trader to a limited company precisely because some clients/potential clients stopped using sole traders, related to IR35. I work for several different clients for different lengths of time each month and some only sporadically. Yet my understanding is that CEST tool isn't written to take that into account necessarily and the wording is odd for some questions.

I'm also incensed that the government thinks it's OK for companies to take tax and National Insurance at source but not treat that person as an employee with sick pay, holiday pay and basic rights of an employee. Why should your limited company have to fund sick pay, maternity pay etc if it can't take all your earnings into account as part of that?