Response to House of Lords IR35 report “lacks any substance”
The Government’s long-awaited response to the damning House of Lords report into IR35 reform is “staggering”, “lacks any substance” and shows it has its “head buried in the sand”, experts have said.
Earlier this month, the Government responded to the highly-critical House of Lords investigation into the off-payroll working rules, in which a number of the concerns highlighted by the Finance Bill Sub-Committee were addressed.
Despite promising the private sector additional support and enhancements to HMRC’s IR35 tool, CEST, the Government dismissed concerns that IR35 reform will negatively impact contractors and glossed over fears made in the report regarding non-compliant blanket determinations.
Government has “head buried in the sand” over IR35 reform
Having explained its reasons for rolling out IR35 reform in the private sector on 6th April 2021 – which is now a certainty – the Government was criticised for overlooking many of the recommendations put forward in the report.
Qdos CEO, Seb Maley, commented: “It’s clear from the Government’s response that it still has its head buried in the sand when it comes to IR35, with recommendations in the Lords report having been all but ignored. From what I can see, the few promises made by the Government have been made before, with no positive change resulting from them.”
Of the same view was Dave Chaplin, CEO of Contractor Calculator. He slammed the response, which he said “lacks any substance and gives light promises that HMRC will work to help businesses to prepare. Don’t hold your breath.”
CEST concerns rejected
In response to the criticism regarding HMRC’s Check Employment Status for Tax (CEST) tool, used by businesses to determine IR35 status, the Government “disagreed” with the Finance Bill Sub-Committee who said it is “not fit for purpose.”
The time and resources invested in developing the tool were then referenced before the Government committed to making continuous improvements to the technology – a promise that has been made a number of times previously.
Qdos’s Seb Maley found it “incredible, but unsurprising, that the Government refuses to acknowledge CEST’s failings”, while Contractor Calculator’s Dave Chaplin said, “it is staggering that the Government continues to spout out the same debunked messages that the tool has been robustly and rigorously tested.”
He then explained, “everyone knows, from FOI requests, that they do not hold any detailed evidence to prove their claims. It’s interesting to note that Mutuality of Obligation was not even addressed – it’s a key element of case law and it was omitted from CEST.”
Blanket decisions and contractor bans largely overlooked
The Government also responded, to a degree, to the points raised in the report regarding blanket IR35 determinations, widespread contractor bans and the impact these decisions will have on the independent workforce.
Drawing on the public sector experience, the Government claimed similar measures introduced in 2017 do “not suggest that there is an overall reduction in the demand for the skills and services contractors offer as a result of these changes.”
The Government then all but dismissed the Finance Bill Sub-Committee’s concerns regarding blanketing, stating that as part of the February 2020 review into IR35 reform, it had found “that the vast majority had put in place processes to ensure accurate status assessments.”
That the Government hasn’t acknowledged that firms are reportedly forcing contractors inside IR35 or banning independent workers altogether is “derisory” said Dave Chaplin: “It’s well known that many firms, including all those in the financial sector, are using the tax issues as their primary reason, with many now moving lots of their project work abroad.”
Response doesn’t change the “overall picture”
In addition to referring to the research promised into public sector changes, which will be complete before the introduction of private sector changes next year, the Government then vowed to continue engaging “with a wide range of stakeholders on the implementation of the reform, working with different sectors to ensure businesses understand the changes.”
However, this rhetoric mustn’t sidetrack businesses given it doesn’t change the reality of the situation, said Seb Maley: “While this response is inadequate and frustrating, it doesn’t change the overall picture. IR35 reform is arriving in the private sector next April, which means businesses must prepare for the changes immediately.”
To read the Government’s entire response, please click here.