The government has responded to the findings of the Lords Off-payroll inquiry, which found the IR35 reforms to be flawed, unfair and in need of a complete overhaul. The report detailed more than 29 issues with the off-payroll legislation, urging the government to consider the great burden is placed on businesses and the inherent unfairness in classifying contractors as ‘employed for tax purposes’ with zero employment rights.
Many stakeholders were hoping that such a damning and conclusive verdict would prove difficult to ignore, with one legal expert commenting: “It will be interesting to see whether the Lords Off-payroll inquiry will carry greater weight than the feedback and lobbying undertaken by those with an interest in the contracting sector over the last few years.” The Conservative David Davis also said the government “must pay attention” to the inquiry’s findings.
However, addressing MPs after the inquiry’s publication, financial secretary to the Treasury, Jesse Norman, said that the government’s IR35 thinking “has not changed”, and that they remain fully committed to rolling out the reforms in April 2021. Only one of the peers’ many recommendations was accepted, with Mr Norman conceding: “The government will use this additional time to commission further external research into the long-term effects of the reforms in the public sector”.
The comments will come as a great disappointment to those who hoped the Lords Off-payroll inquiry would carry some authority. Despite the Lords conclusion that “IR35 fails to acknowledge that contractors bear all the risk for providing the workforce flexibility from which both parties benefit,” the government have reverted to their usual IR35 rhetoric. This has led many to believe that the decision to enforce the reforms next April was a forgone conclusion.
The concession to ‘conduct further research,’ has been trotted out by HMRC before with little effect. The government’s ability to sidestep formal verdicts that don’t support their agenda only highlights the need for reviews to be independently conducted. This was the case with the independent investigation into the loan charge, which found it to be unjust – a verdict that has subsequently led to significant changes in the legislation.
Mr Norman’s cursory comments also fail to formally acknowledge the report, leaving many to believe that it will be dealt with through the Finance Bill. Mr Norman said that the government would shortly introduce an amendment to the bill to legislate for the April 2021 framework, dashing hopes that its earlier omission may be significant.
The response is unsatisfactory for many who not only want changes to the reforms, but for them to be abandoned altogether. IPSE’s Andy Chamberlain said: “It is clearly time for the government to rethink its entire approach to IR35. The contractor sector is already under immense strain because of the coronavirus crisis and the pointed lack of government support for the majority of contractors who work through limited companies. The last thing this embattled sector needs now is the ill-conceived and destabilising changes to IR35.”
There’s also some indication that there might be a backlash among contractors. With the reforms deferred to 2021 and current IR35 enquiries suspended, recent independent research shows that 56 per cent of contractors who had been assessed as inside IR35 by their private sector clients plan to revert back to working outside the scope of the legislation for the next year. It’s thought that this may ‘jar’ next year when the reforms are introduced, particularly with economists predicting that businesses recovering from the epidemic will switch to an ‘on-demand’ hiring model.
Many stakeholders believe that in the wake of coronavirus, a complete appraisal and overhaul of the tax system is needed. One tax expert commented that: “Tax reform is driven by short-term interests and policy objectives, with hastily drafted legislation, rushed through parliaments without sufficient debate. IR35 is one such example of legislation rushed through with inadequate attention to how it will work in practice.” Amidst calls for certainty, simplicity and fairness in the imposition of new tax rules, now may be the time to undertake fundamental reform to ensure that taxes are straightforward and supportive of growth.
This content has been supplied by IR35 Guru
If you’ve been affected by the Off-Payroll reforms or if you’re unsure about your employment status, ContractingWise can help you make sense of your options. We have a range of hassle-free services that can help you re-open your limited company, or find the right umbrella company for you. To talk to a member of our team, call: 0203 642 8679