Chief secretary to the Treasury Steve Barclay said that this is a deferral, not a cancellation, and that the government is still committed to introducing the policy.
The new tax measures, planned to make organisations responsible for determining whether a contractor carrying out work for them should be treated as an employee for tax purposes, will now come into effect on 6 April 2021.
James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk, said in a statement: “The Lords made it pretty clear... that the Treasury's IR35 position was increasingly untenable, with the rising backdrop of Coronavirus.”
Poyser welcomes the pause and said it will mean that contractors can now switch gears and put all of their energy into the wider challenges the UK is going to be facing in the coming months.
“This [delay] will also give time for the Lords review to be published, and we hope that the Treasury and HMRC listen to their recommendations before attempting to re-table this legislation for April 2021,” added Poyser.
The House of Lords Economic Affairs Finance Bill Sub-Committee, led by Conservative peer Michael Forsyth, held an inquiry into the possible effects of implementing IR35 in the private sector in February. The Treasury also ran its own review at the same time to ensure implementation will run smoothly.
Forsyth asked the Treasury and HM Revenue & Customs in a Budget meeting on 16 March whether they had considered deferring the changes, which were timetabled for next month.
He said: "I wondered whether HMRC had considered, given the enormous financial impact that we are about to experience as a result of Coronavirus, whether it might not be sensible for you to defer introducing these changes at least for six months if not a year.
"What is being proposed in the Budget I think is generally acknowledged to be inadequate in terms of the scale of the crisis and it does seem rather perverse to add an additional burden of this kind on business which could easily be deferred for six or 12 months,” Forsyth added.
Matthew Sharp, a senior associate in Fieldfisher's dispute resolution group specialising in contentious tax matters, said: “The Treasury’s decision to delay IR35 reforms by a year shows that the government has listened to the concerns of businesses, which were already deeply worried about the new rules even before the Coronavirus outbreak.
“While the move is welcome it will come as little comfort to workers whose contractor relationships have already been terminated by companies too daunted by the changes to assess and adjust their contractor relationships.”Sharp also suggested that once the Coronavirus subsides the government should use the 12-month extension to significantly improve the quality of its communication on IR35 and address concerns with the efficacy of HMRC’s online tax assessment tool, which he said had proved to be unfit for purpose.