The Government has “done the sensible thing” by delaying new tax rules for businesses and contractors by a year due to the coronavirus crisis.

The decision to push back the off payroll working rules, IR35, was announced as part of the Government’s £330 billion war chest to help business through the rapidly escalating.

Last month, HMRC said it would take a light touch approach to dishing out penalties of those who fall foul of the new rules, which were due to come be introduced on April 6.

Chief Secretary to the Treasury Steve Barclay announced they will now come into force on April 6, 2021, insisting “this is a deferral, not a cancellation”.

“The Government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company, pay broadly the same tax as those employed directly,” he added.

The legislation is designed to prevent individuals from setting up a business and paying lower rates of tax through it, when they are effectively in full-time employment with a company. The rules already apply to the public sector.

Financial Secretary to the Treasury Jesse Norman has previously said “it is only right that the off-payroll rules are applied consistently across all sectors”, adding, “two people sitting side-by-side doing the same work for the same employer should be taxed in the same way”.

Warnings have already been issued that the rules will put huge numbers of contractors working on the Sellafield site and for BAE Systems in Barrow in the firing line.

The Government’s decision was welcomed by the Association of Independent Professionals and the Self-Employed (IPSE), with its director of policy Andy Chamberlain saying it “has done the sensible thing”.

“It is right and responsible to delay the changes to IR35 for at least a year during the Coronavirus crisis, to reduce the strain and income loss for self-employed businesses,” he said.

“These changes have already undermined the incomes of many self-employed businesses across the UK. However, they would have done even more serious damage if they had gone ahead as planned.”

Mr Chamberlain added: “This is a sensible step to limit the damage to self-employed businesses in this grave and unprecedented situation, but we also urge the Government to do more. It must create an emergency Income Protection Fund to keep the UK’s crucial self-employed businesses afloat.”

Several accountancy firms in Cumbria have alerted contractors to the impact of IR35.

Paul Hornby, managing director of JF Hornby based in Ulverston, has previously warned the rule change could put contractors in “serious financial trouble if they have been living lifestyles in line with earnings which soon may take a serious hit”.

The Government estimates non-compliance with off payroll working rules is to reach £1.3 billion a year by 2023-24, depriving public services of vital funds.

It has also stressed it valued the vital role that the self-employed have in the UK labour market.