IR35 – the Government’s framework to tackle tax
avoidance by those in ‘disguised employment’ – has not worked
properly throughout its 20-year history. As a result of the
Covid-19 pandemic the Government decided to defer by a year its
plans to extend the off-payroll rules to the private sector. It
should now use this extra time to completely rethink this
legislation.
These are among the conclusions of the House of
Lords Economic Affairs Finance Bill Sub-Committee’s
report, Off-payroll working: treating people
fairly, published today.
The Government has not sufficiently analysed
the unintended behavioural consequences of the proposed reforms.
Contractors are already being laid off, despite the reforms’
delay. Many witnesses told the Committee that the rules have made
them “zero-rights employees” with none of the rights of being an
employee, or the tax advantages of being
self-employed.
The Committee therefore calls on the Government
to keep its promise on implementing the recommendations of the
Taylor Review: that the taxation of labour should be made more
consistent across different forms of employment, and that there
should be a fair balance between tax, rights and
risk.
During the passage of the Finance Bill the
Government intends to legislate to carry out external research on
the impact of the reforms six months after they come into effect.
The Committee consider this is too soon to give a full and
accurate picture and calls on the Government to carry out this
research 18 months after the rules have been in
operation.
, Chair of the
House of Lords Economic Affairs Finance Bill Sub-Committee,
said:
“The Committee welcomed the Government’s
decision to defer these off-payroll working rules in the wake of
the Covid-19 pandemic.
“However, 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 rules were deferred for a year because of
the current crisis, but how prepared will businesses recovering
from the crisis be to take on this extra burden on next year? The
Government needs to think this through very carefully. We call on
the Government to announce in six months’ time whether it will go
ahead with reintroducing these proposals.
“Contractors already concerned by these
uncertain times now have the added worries of paying more
employment taxes and having their fees cut by clients making
additional National Insurance Contributions. Also concerning, is
the number of companies getting rid of contractors in
anticipation of the implementation of these new
rules.”
The House of Lords Economic Affairs
Committee appoints a Finance Bill Sub-Committee each year to
inquire into the draft Finance Bill. This year the
Sub-Committee decided its inquiry should examine the Government's
proposal to extend the off-payroll working rules, which were
introduced for the public sector in 2017, to large and
medium-sized organisations in the private sector from April
2020.
