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.
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.”
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.”
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.”