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Lords committee calls for rethink on IR35

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In its first report of the Parliamentary session, the House of Lords Finance Bill Sub-committee has poured cold water on the government’s proposed reforms to the off-payroll rules for large and medium-sized businesses in the private sector which are to be delayed until 6 April 2021.

While the committee welcomes the 12-month delay in implementation, its report Off-payroll working: treating people fairly criticises the government’s approach to the rules which it says ‘have never worked satisfactorily, throughout the whole of their 20-year history’, and particularly the move to making businesses ‘responsible for enforcing a regime which HMRC has struggled with’ and which, it says, is effectively ‘privatising tax compliance’.

The report notes that transferring responsibility for operating the rules to the client aims to improve compliance but fails to take into account the cost to business of implementing the changes and underestimates the extent of unintended behavioural consequences and their potential impact on the labour market including the gig economy; for example, some organisations had already stopped engaging any freelance contractors. The report finds that support for business on making status determinations falls ‘well short of what is required’ and questions whether HMRC’s CEST tool is fit for purpose.

Highlighting the mismatches between employment status for tax purposes and employment status under employment law, the committee finds that some contractors had already found themselves in limbo, treated as ‘employees’ for tax purposes but without any of the usual rights associated with employment: in effect ‘zero-rights employees’.

Before implementation of the changes in the private sector, the committee invites the government to commission an independent review into the implementation of changes in the public sector, to fully evaluate the impact of the changes on the labour market. In the context of coronavirus, additional burdens for business will be particularly unwelcome in 2021 and the committee asks the government to announce by October 2020 whether it will implement the changes in April 2021 or whether further delay will be required.

Finally, the report recommends that the government should design a new, long-term alternative solution to the off-payroll rules, providing certainty around the tax treatment that will apply for all parties to arrangements, that is fair to contractors and simpler to administer and manage.

Issue: 1485
Categories: News