In light of the current Coronavirus pandemic, the implementation of the private sector IR35 reforms was postponed until April 2021. Given the current economic environment, David Davis MP had campaigned for a further deferral of the rules to 2023 / 2024, which also follows a recent effort by a House of Lords Select Committee urging the Government to actually radically rethink the proposed IR35 rules.
Yesterday MPs failed to vote on the proposed amendment. Consequently, it looks likely that the IR35 rules will be implemented in April next year in their current guise, forcing every medium to large private sector business to assume responsibility for the tax status of any contract worker, an issue which HMRC has itself struggled to address since the original IR35 tax avoidance measures were introduced in 2000.
Given that many of our clients are IT contractors, management and business consultants, the initial postponement was welcomed. However, this will now inevitably be felt by a vast majority in a little over 10 months.
Some, having already undertaken a personalised assessment of their contracts in the run up to the previous April 2020 deadline, have opted to cease using their personal service companies for 2020 / 2021 and begun to utilise the services of an umbrella organisation.
However, the significant tax burden that will result from IR35 need not necessarily come to pass. We have already seen many such clients heeding our advice to engage more actively in their pension planning and to increase their ongoing funding to mitigate some or most of the effects of IR35. This has proven particularly popular with older clients, given that such funds can be accessed if necessary at age 55 and beyond and the current pension freedoms / flexibility implemented in 2015 now allowing clients to dictate the structure of such payments to suit their own particular needs. We have also seen active use of the facility to carry forward unused Annual Allowance (AA) to fund to greater levels than the normal AA limit of £40,000 per annum permits.
If you would like to undertake an IR35 pension planning review or just a pension planning review in general, please feel free to contact ourselves for an initial, no obligation consultation. After all, aside from IR35, there are many reasons why a review of such planning can be highly beneficial.