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.
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.
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