ICAEW Urges Government to Drop IR35 from Finance Bill

18th June, 2020
By 18. June 2020Finance, IR35, News
ICAEW Urges Government to Drop IR35 from Finance Bill - ContractingWISE

In its latest representation on behalf of ICAEW, the Tax Faculty has concluded that the government should not consider the proposed amendment to the Finance Bill that would introduce the expansion of IR35 reform to large private sector companies.

Released on the 5th of June, the report states that further considerations of the new off-payroll working regime should be delayed pending an autumn Finance Bill. Instead, the faculty advise that the government should use the time to thoroughly review its existing implementation. The full report can be read here.

The changes had been due to come into force on 6 April 2020, but were postponed until April 2021 as part of the government’s Covid-19 support package for businesses. The Faculty argues that many private sector organisations have already implemented system changes in anticipation of reform, presenting the government with a unique opportunity to consider whether the legislation will work as intended.

The Faculty also argues that there are a number of critical matters that require resolution before the measures should be adopted, such as the faults with the government’s assessment tool, CEST, and the issue of statutory employment benefits for those who are deemed employees under the current IR35 rules.

This last issue was central to the employment law outcomes from the Taylor Review, and Chancellor Rishi Sunak has subsequently referred to possible changes to the taxation of the self-employed in recent announcements. In order for the off-payroll legislation to work, these changes need to be made concurrently rather than adopting a piecemeal approach.

The Tax Faculty’s recommendations support the House of Lords Review in April, which concluded that “Government must address IR35’s inherent flaws and unfairness.” The review is thought to have played an important part in the reforms being suspended, however the government’s subsequent response to the report has been dismissive. It’s likely that HMRC’s limited capacity to deal with IR35 issues during lockdown, and the possible additional strain on the CJRS that would come from reclassifying contractors as inside IR35, also played a part in side-lining the reforms until next year.

However, at the beginning of the month HMRC announced that the temporary suspension of their tax inquiries is over. A spokesperson said that HMRC is still committed to protecting individuals and businesses from the impact of the crisis, including offering tax deferrals, VAT reductions and support for those who are seeking to settle outstanding payments so that they don’t have to pay the Loan Charge. However, this week it was reported that the government is set to hand tax officials “draconian” new powers in next week’s Finance Bill sitting.

Although this new legislation is mainly targeted at clawing back incorrect or fraudulent claims from the Covid-19 support schemes, it’s highly likely that the tax office will be under increased pressure to raise tax receipts. Given IR35 is an area in which HMRC believes there is huge non-compliance, it wouldn’t be a surprise if the tax office was to focus a proportion of its efforts here.

The contractor trade body has confirmed that 710,000 PSCs were excluded from any or much CJRS support, which means that many limited company contractors are already facing financial difficulty because of Covid-19. This gives rise to a potentially precarious situation. Recovery of the economy will have to factor-in the recovery of these same entrepreneurs, company directors and self-employed, who will be relied upon to plug essential skills gaps without businesses committing to long-term overheads in this uncertain market.

During the last financial crisis in 2008/9, the self-employed were not only instrumental in the UK’s economic recovery, but the ranks of contingent staff inevitably grew as people were forced out of jobs to fend for themselves. This looks likely to happen again as the economic contraction (20% in April alone) leads to inevitable redundancies. However, what makes contracting viable is the ability to offset the significant risks involved, such as the lack of security or employment benefits, with certain tax reliefs.

This viability risks being eroded as IR35 reform compromises the mutually beneficial relationship between the client and the contractor. The government’s equivocal attitude to issues such as ‘zero rights employment’ and non-compliant blanket bans on PSCs risks this relationship becoming unbalanced and exploitative.

This week it was confirmed by insiders that non-tech contractors at Deutsche Bank have been forced to sign a 10% rate cut on their existing contracts or face being offboarded. The cut comes after Deutsche Bank tried to impose what was effectively a 25% rate cut on contractors in February by compelling them to work through Resource Solutions rather than their own limited companies ahead of the IR35 rules. When IR35 was delayed, Deutsche Bank agreed to hold off and to allow contractors to continue using their own limited companies. However, many contractors have since been presented with non-negotiable reductions to both their rates and hours.

Deutsche Bank declined to comment on the claim, however the case raises an important question. Faced with lower rates, fewer hours, higher taxes, zero rights and zero security, how much longer can contractors working in the UK afford to accommodate this working model? Lobby groups against IR35 reform are urging contractors to contact their MPs and supply written evidence to the Finance Bill Committee.

This content has been supplied by IR35 Guru

If you’re wondering how to win the best contracts post-Covid, our informative guide is full of insights to give you the best chance of success. ContractingWISE have access to a wide range of hassle-free services that can help you with setting up a limited company or finding the right umbrella company for you. To talk to a member of our team, call: 0203 642 8679

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