House of Lords: “Are there any benefits to the IR35 reforms at all?”

Olivia Gould, Junior Tax Consultant at Aspire comments on the outcomes of the House of Lords Finance Bill Sub-committee call for evidence.

Yesterday, I listened in on an IR35 discussion at the House of Lords, where the Finance Bill Sub-committee called for evidence on the detriment the reforms are expected to have on those working in the industry.

From the representations made, it is clear that the industry is not prepared. With no finalised legislation, obscure guidance and a huge lack of financial resources IR35 is causing fear and uncertainty nationwide.

Aspire are offering specialised IR35 training to staff to ensure that practices are amended and understood before implementation on 6 April.  Our training will cover the need-to-know areas of the legislation, the preparations that need to be made and the extent of knowledge that those making determinations will need to possess.

Call us on 0121 445 6178 today to discuss the effects IR35 will have on your business and what Aspire can do to mitigate risks and concerns.

Summary

The Finance Bill Sub-committee called for evidence from: Abigail Agopian (CBI), Lorence Nye (FSB), Andrew Chamberlain (IPSE) and Julia Kermode (FCSA).

The Sub-committee questions the statistics for the current lack of preparation across the industry. Julia Kermode confirmed that a recent study showed the following:

• 50 percent of those who responded were not confident in making an accurate status determination statement, and
• 49 percent had not taken steps to prepare for the IR35 reforms

Andrew Chamberlain put forward his opinion on the weaknesses of the Check Employment Status for Tax tool (CEST), and its inability to consider mutuality of obligation. The committee then questioned whether this is a fatal flaw in the system, to which the panel confirmed, and added that HMRC’s interpretations of the law compared with that of case law outcomes will also be a huge step back in clarifying employment status.

The panel collectively agreed that a delay of IR35 would be welcomed, as the current risks and negative impacts will outweigh the benefits of the reforms and, if given the opportunity, would tell the Chancellor not to proceed. It was, however, discussed that a delay so close to the intended implementation would now be more controversial due to larger companies spending large sums of money in preparation that would now be wasted.

The panel were individually tasked to go back and find conclusive figures on the net and gross costs that companies are spending on average to prepare and obey the IR35 reforms. This will inevitably highlight that HMRC’s initial £14.4m expenditure estimate across over 60,000 companies will fall incredibly short, estimating to be just £180 per company to prepare. In another study between just 6 large companies, it was discovered that £3m had been spent already to prepare for IR35.

Let’s not forget the economic chaos this will cause for business who will now refuse to engage with personal service companies (PSC). We have seen examples of this already with large, well-known banks who will only engage with those who are willing to enter into an employment engagement.

Lorence Nye also addressed the difficulty of a client-driven dispute process, which may see a lot of contractors forced into an engagement that doesn’t suit them out of fear of losing future work from the client.

It is fair to say that the panel gave the Sub-committee a lot to consider. A true version of how we and the industry are viewing these changes was put forward, and we genuinely believe that the concerns we all have were voiced with good reasoning.