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IR35 reform given “green light” by MPs 

IR35 reform one step closer to becoming a reality 

Hopes that IR35 reform will be scrapped have faded further after MPs initially approved the 2021 rollout in Parliament last week. Having been postponed by 12-months due to COVID-19, the revised rollout date of 6th April 2021 was passed through on Thursday 18th June, at the Committee Stage of the Finance Bill.

However, MPs will have another opportunity to table amendments to the incoming reform at the Report Stage of the Finance Bill, which is expected to be held in the coming weeks and may last several days. But while MPs from various political parties did make their concerns about the legislation and the changes clear to the Financial Secretary to the Treasury, Jesse Norman, IR35 experts do not expect a U-turn at this stage and have urged private sector firms to prepare. 

“Go back to the drawing board”, Treasury told

In response to Norman’s claim made in the ninth sitting of the Finance Bill that “organisations are better equipped to make the correct employment status for tax assessments than are individual contractors”, the SNP’s Steven Flynn, criticised the Treasury chief for not listening to the damning House of Lords report into IR35. He then urged the Government to “pause this policy and go back to the drawing board.”

Other MPs to raise concerns included Alison Thewliss, also of the SNP, Conservative MP Andrew Jones, and Wes Streeting of Labour, who said: The delayed roll-out is something that has been widely welcomed, but it is crucial that the Government use this time wisely. It is not clear from the year that has just passed that the Government will use the next year any better.”

Treasury chief rejects concerns 

Such concerns were rejected by Norman who, in addition to insisting “this reform does not tax the self-employed”, referenced the supposed success of public sector reform, introduced in 2017. He said public sector IR35 reform has been “effective in reducing non-compliance with rules: it raised an estimated £250 million in additional revenue in the first 12 months, with independent research showing that it did not damage the flexibility of the labour market.”

The Treasury chief also focused on what he described as “widespread” non-compliance in the private sector, which he stated is “forecast to cost the Exchequer more than £1.3 billion a year by 2023-24 if not addressed. This is not sustainable. It denies the taxpayer revenue for important public services and perpetuates an unfairness between individuals who may work in the same way but pay different levels of tax. It also results in a disparity of tax treatment between the public sector and other sectors.”

Private sector firms urged to prepare

Regardless of the opposition to the changes from several MPs, the proposed amendment was accepted overall. With IR35 reform now one step closer to becoming a reality, IR35 specialist, Qdos, called on private sector businesses to ramp up their preparations. 

After describing the latest development as “hugely disappointing, albeit unsurprising that MPs have given the 2021 rollout the green light”, CEO, Seb Maley, encouraged hiring organisations and recruitment agencies to “ensure they are in a position to make accurate IR35 decisions well in advance of the implementation date.”

“If mismanaged, these changes pose a real threat to contractors, the recruiters who place them and the businesses that engage them. Firms yet to consider IR35 need to immediately, while companies that banned contractors in anticipation of the reform need to understand that it can be managed with the right approach.”

By Contractor Weekly

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9 thoughts on “IR35 reform given “green light” by MPs ”

  1. Radders
    • Steve

      Right so my limited company becomes an agency (no licience required, anyone can become an agency).. The Agency who has the contract with the client pays my agency my full rate and my agency employs me as a self employed person. Anyone see any issues with this ?
      I know previously Agencies don’t like self employed asthey become liable forthe tax if you don’t payit after 2 years but as I’ll have my “own agency” and a limited company inbetween then they aren’t liable.

      • AG

        I think it would fall foul of the MSC legislation which has a debt transfer provision, which means that agencies and ultimately their clients can become liable for a managed services companies unpaid income and NI bills.

  2. Andrew Harrison

    Well, it’s full circle back to umbrella companies as the easiest option.
    I approve of a level playing field for taxation – shame this isn’t about that.

  3. Richard

    I have no problem with “fair taxation” but this isn’t about that as the poster above says. What makes this untenable for me is the fact that I’m forced to be deemed an employee when I’m not – forgetting the very obvious question of holidays, benefits, sickness or a career ladder (im bored of making that point, and the government seems intent on ignoring it) essentially my daily rate is usually higher than a perm position (if a similar one even exists, on a project basis) because of two things 1) i am liable for my own risks (being out of employment, ensuring skills are current, ensuring I have the right equipment for the job etc) 2) I travel nationally and europe/International to provide these services.

    When IR35 hits, im expected to pay for: training, equipment, travel and subsistence *out of net pay* ?? Forget the government’s dim-witted view of me “not being a business” lets assume im an employee (without the benefits of one) .. what employee is expected to pay for their own flights, accommodation, travel, laptop, residential training etc etc out of their own pocket ?? The inability to charge legitimate business expenses mean I cant operate – how can I take a contract inside ir35 (im based in the south) in Manchester, for example where id spend circa 700 to 1000 gbp per week in expenses just to do the gig ? …. client companies will not want to increase daily rates to cover this, and they won’t find local resource for niche skills, and I cannot afford to work under those unfair conditions.

    I guess I’ll carry on concentrating on clients outside the UK, and the big consultancies and offshore companies (maybe Rishi Sunaks father in laws company ?) will hoover up the uk private sector, charging the clients more given the lack of competition, and being far more efficient with their tax burden than I *ever* could because I dont have an operating base outside the UK or an army of accountants.

    Good job HMRC, well thought out move. It’ll be fine.

  4. XY

    Sunak’s father-in-law is co-founder of Infosys, the second largest Indian consultancy.

    With the big consultancies benefiting from this… hmmm. Nothing to see here?

  5. Rasta

    Like Richard I am also really bored with the whole topic of IR35. It seems to be some sort of political or economical football for the Permanent Staff within the Treasury to kick around. Most Contractors are highly skilled and skim the marketplace offering services on a temporary basis to fix or address a specific problem aka a project.

    I am bored with others insisting this is permanent work. I have reviewed the profile of my projects and I have averaged around 5 Clients per year in the following cities Berlin, Madrid, Barcelona, Oslo, Dubai, Mumbai, Paris, Belfast, Liverpool, London, Phoenix, Chicago, New York, Sydney & Singapore. It’s this type of flexibility that has benefitted the UK and HMRC which the so called IR35 Experts have not considered.

    How many Public Sector Organisations have foreign subsidiaries; apart from the Foreign & Commonwealth Office, “None”. So why is anyone even trying to compare the UK Public Sector to the Private Sector. In fact why didn’t the Chinese Branch of the Foreign & Commonwealth Office alert the UK in a timely manner of the extent of the Covid 19 Pandemic in China; this failure has cost far more money than £1.3 Billion. They need to focus getting their own house in order, address the backlog in NHS Services and the backlog in the Courts which is costing Billions.

    Not to mention that there has not been one single case wher HMRC have persued a Public Sector Organisation for an incorrect IR35 assessment.

    Before we all get too exercised about IR35 in the Private Sector all Jesse Norman the Financial Secretary to the Treasury needs to do is to release a definitive IR35 CEST (Check Employment Status Tool) today, that we can all rely upon to define the IR35 status.

    Up until now we have all relied on itterations and reversioning of the CEST tool since 2011 or so.

    Jesse just tell us Contractors what aspects of the CEST Tool you are so keen to change, why a Contractor cannot rely upon it to define their own status, and why the interpretation of it must be made by the Client or Agent.

    Issue the CEST Tool and stop boring us all with this “IR35 White Noise”, which is so damaging to the flexible workforce, and will ultimately be exposed as a complete waste of time and effort.

  6. AG

    Unfortunately very short sighted from the government, clipping the wings of the countries most entrepreneurial. It won’t increase revenue, but it will put up costs and result in a UK brain drain.

    An average day on our projects is 10-12 hours (sometimes slightly longer), which is palatable because of the rate. Without that level of compensation, it’s just not worth the sacrifice and extra pressure. The client would need 2-3 perms to do the same job, usually not as well alongside the associated HR hassle they come with, which means ultimately they wont do the project out of the UK.

    The tax advantage of working via a small company has been levelled up over the past few years, the additional benefit still being the flexibility of when to pay yourself and the ability to invest other projects (which creates other jobs), this flexibility is traded off against all holiday pay, sick pay, employment rights, pension contributions, standard working days and career progression within a single company.

    Being entrepreneurial, we have a compliant solution for our clients to enable project continuation, but it’s tax negative for the UK and disruptive for all involved. Nor will partial reform work, the threat of retrospective tax means we will not take the risk and our mitigation plans are in now in place.

    The other intended consequences also mean we have put a halt on moving house (stamp duty 25k lost) as we now dont see our future in the UK. Reform this unfair barrier for work for small business before the captains realise their sailors have jumped ship.

  7. Mass Unemployment

    ALL of the people in my contract network are currently looking for clients, not a single one has an income at the moment.

    I foresee mass Universal Credit applications and mass company closures .

    A mess that would have been avoidable IF HMRC had the capacity to LISTEN rather than defend a bad price of legislation because of THEIR EGO’s.

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