Members of the House of Lords have called for the controversial reform of the IR35 tax rules to be postponed in light of the coronavirus fallout and its economic impact.

Last month the Treasury confirmed it was pushing ahead with its reform to the tax rules, which will see every medium and large private sector business in the UK become responsible for setting the tax status of any contract worker they use from April 2020.

The government admitted the incoming changes were a "major change" for the industry, but argued the reforms were necessary to address the "fundamental unfairness" surrounding non-compliance with the current IR35 rules.

Now, peers are warning to continue with the planned changes in light of the market chaos caused by the ever-spreading coronavirus outbreak would be "perverse".

Speaking at a finance bill sub-committee in parliament yesterday (March 16) Lord Forsyth of Drumlean asked the Treasury and HM Revenue & Customs whether they had considered deferring the reform, which he warned could have a "very damaging effect on the incomes of many self-employed contractors".

He said: "We've had quite a lot of evidence from people directly affected by these proposed changes, and the summary of what is being suggested by these contractors is they will find themselves under very severe pressure financially as a result of those changes.

"And I wondered whether HMRC had considered, given the enormous financial impact which 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."

He added: "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.”

But Lindsey Whyte, director of personal tax, welfare and pensions at the Treasury, stuck by the chancellor's decision as part of last week's Budget to go ahead with the planned reform next month.

Ms Whyte added: "The chancellor did also announce quite a significant package of support for public services and businesses and individuals in responding to the coronavirus outbreak.

"The government is acutely aware that this is going to be a difficult time for many people and many businesses."

Introduced in 2000 IR35 is an anti tax avoidance rule that applies to all contractors and freelancers who do not fall under HMRC’s definition of being self-employed.

Dave Chaplin, chief executive of ContractorCalculator and director of the Stop The Off-Payroll Tax Campaign, said:

"The Lords clearly understand that the off-payroll tax dishes out 'rough justice' as Lord Forsyth put it, by relying on the uncertainty to encourage firms to misclassify self-employed professionals, thereby destroying perfectly good business relationships with contractors.

"These contractors will become vulnerable, just at a time when the whole economy is about to suffer unprecedented hardship caused by the coronavirus."