Government policy arising from COVID-19 is creating shifting sands for everyone, no more so than for those engaged in recruitment. As the guidance, the closing of businesses and the virus itself results in severe disruption, the need to make rapid business decisions is pressing for both regular staff and for the deployment of agency workers and contractors. For the former, consideration of homeworking and allied IT requirements will come to the fore, whereas for the latter the appetite for agency workers and contractors will depend on how each business’ target sector is affected. No doubt there will be winners and losers.
However one area for review is yesterday’s decision by the government to delay the imposition of new Off Payroll Rules (known as IR35) for a year until 6th April 2021. The decision has been made on the basis of providing support for self employed company contractors. Whilst contractors and those supplying them will undoubtedly welcome the decision, it cannot pass without comment.
We cannot claim that the decision results from years of lobbying, it patently does not. All the lobbying we and others have undertaken asking for adjustments to make the rules more suitable and workable have very obviously failed. HMRC is determined to proceed and even now there is no hint of change in attitude. Save for one thing.
COVID-19 has brought sharply into focus the vulnerable position contractors are in due to their lack of employment security and the business risk they take. As for other workers or employees, contractors may now have long periods of time when they are not in work. However contractors will receive no pay during those periods, no sick pay or gratuitous payment from an employer, and have no recourse to compensation for unfair decisions. In making the decision to delay the IR35 rules the government clearly now recognises this – there can be no other basis for it other than to provide some financial relief to contractors.
How would that relief work? The benefit of retaining the old IR35 rules is only that a status decision remains with the contractor. This means that clients and agencies need not bother with all the practical steps, concerns and risks that the new Off Payroll Rules would impose. Contractors can be paid gross as before. The removal of the bother itself does not result in any relief for the contractors but does save hirers and agencies from a good deal of administration. This saving is not the stated target though, cash relief to the contractors is.
The new IR35 rules are intended to address serial tax avoidance by contractors, as repeatedly claimed by HMRC and the Treasury. Delay therefore means that the decision is to allow the claimed continued serial tax avoidance. This in turn means that the government believes that by allowing payment gross to continue as before, contractors will have access to additional funds and cash flow to weather the COVID-19 storm.
COVID-19 is not the only reason why contractors may not be paid. The nature of their business is that they provide temporary services with periods of layoff which they need to create reserves for. The government now realises that they need those reserves, but in demanding that they are to be taxed as employees as under the proposed new Off Payroll Rules, they are ignoring this fundamental point. Contractors are not employees; as clearly now acknowledged they are exposed to greater risk than employees.
In the brave new world that will emerge post COVID-19 and Brexit, there should be a recognition that the broad brush approach of designating contractors purely as tax avoiders who should correctly be paid just as employees is wholly flawed. By all means adjust to avoid actual tax avoidance but also allow for the reality. Perhaps the government should reflect on this before going ahead with the new rules in 2021.