Finance Bill Sub-Committee call for IR35 review

• Today, the House of Lords Economic Affairs Finance Bill Sub-Committee (‘the Committee’) have published their report on the off-payroll working rules extension into the private sector.
• The extension should have taken effect from 6 April 2020 but, due to COVID-19, has been postponed to 6 April 2021.
• In a report to Government, the Committee highlighted that the evidence they heard during the inquiry suggests that the IR35 rules have never worked satisfactorily in the 20-year history of being in place.
• The Committee describe the off-payroll reforms as “privatising tax compliance”.
• The Committee concluded that the framework is “flawed”.
• Contractors are described as “zero-rights employees” who do not enjoy the rights that come with employment, yet they are considered employees for tax purposes.
• The Committee have concluded that Government has not sufficiently analysed the unintended behavioural consequences of the proposed reforms or the costs that businesses will face (and some have already faced) in preparing for the reforms.
• The Committee states that the support offered by HMRC in determining the IR35 status – and the CEST tool in particular – falls short of what is required.
• Discussing the reason behind the delay, the Committee explain:

“It is right not to impose unnecessary burdens on business at such a difficult time. However, given the dysfunctionality of the existing system, we call on the Government to use the extra time to rethink fundamentally its approach to the legislation.”

• The Committee suggest that the extra time should be used to consider alternatives to the off-payroll rules which do not treat individuals as employees for tax purposes when they do not enjoy the rights of employees.
• Chair of the House of Lords Economic Affairs Finance Bill Sub-Committee, Lord Forsyth, stated:

“…our inquiry found these rules to be riddled with problems, unfairnesses, and unintended consequences. The potential impact of the rules on the wider labour market, particularly the gig economy, has been overlooked by the Government. It must devote time to analysing all of this. A wholesale reform of IR35 is required.”

• The report accuses Government of severely underestimating the costs incurred by businesses to adequately implement the changes originally intended to take effect from 6 April 2020, as well as not considering the concerns raised by a multitude of stakeholders and not sufficiently analysing the unintended behavioural consequences of IR35 on the labour market.
• The Committee have asked that Government announce by October 2020 whether the off-payroll extension will go ahead in April 2021, or whether any ongoing impact to the economy as a result of COVID-19 will require implementation to be delayed further.
• If Government does introduce the off-payroll reforms in April 2021, the Committee recommends that Government undertakes an independent review of the implementation of the off-payroll rules in the public sector and an analysis of the impact of those rules on the labour market.
• The Committee recommends that Government also carries forward its work on the Taylor Review in terms of developing legislation which is responsive to the changing labour market and works across both employment tax and employment law.
• The report states that the Financial Secretary to the Treasury informed the Committee that Government was committed to expanding the remit of the Employment Agency Standards Inspectorate to cover umbrella companies.

View the Committee’s publication here.

Aspire Comment

We have previously addressed that although the delay of the extension of the off-payroll working rules to the private sector was welcomed, it was disconcerting that Government failed to consider the sheer lack of preparation nationwide and only delayed the rules due to COVID-19.

In one of our recent blogs, we commented on the outcomes of the House of Lords Finance Bill Sub-Committee call for evidence earlier this year, in which we saw Abigail Agopian (CBI), Lorence Nye (FSB), Andrew Chamberlain (IPSE) and Julia Kermode (FCSA) voice their concerns on behalf of the private sector.

It is important that, although we have a year until implementation and active lobbying against the extension still continues, this time must not be wasted. Businesses will have time to adequately prepare for 6 April 2021 and Aspire will continue to offer guidance on the changes as well as implementing processes and procedures and providing full bespoke training to you and your staff.

If you need any support, call us today on 0121 445 6178 or email enquire@aspirepartnership.co.uk.