The House of Lords has published a conclusive report into IR35, finding the legislation to be “riddled with problems, unfairnesses, and unintended consequences.” As a result, the Lords have recommended that the Government “completely rethinks” these complex tax rules.
After a lengthy investigation into IR35, the Lords Economic Affairs Finance Bill Sub-Committee welcomed the Government’s decision to postpone private sector changes but urged policymakers to use the next year to carry out “wholesale reform” to the legislation itself.
With the Government having “overlooked” the “potential impact of the rules on the wider labour market”, Lord Forsyth, who chaired the Committee, asked: “How prepared will businesses recovering from the crisis be to take on this extra burden (referring to IR35 reform) next year?” The Government needs to think this through very carefully.”
The “inherent flaws” of the IR35 rules and the uncertainty caused by COVID-19 led the Lords to call on the Government to announces in six months’ time whether it will “go ahead with reintroducing these proposals.”
In light of the unique circumstances, this advice has been welcomed by a number of IR35 specialists, including advisory, Qdos. The firm’s CEO, Seb Maley, who described the report as “eye-opening”, also said that “under the cloud of Coronavirus uncertainty, to commit to rolling out the changes in 12 months – albeit a year later than first planned – would be foolish. The seriousness of the Coronavirus pandemic means the goalposts may need to be shifted again. The Lords have made the right call, urging the Government to reassess things further down the line when contractors, businesses and the UK economy can see a way through this crisis.”
Throughout the report, which IPSE described as a “much-needed dose of sense in the IR35 fiasco”, the issue of ‘zero-rights employment’ was focused on. The Lords made a point that many contractors tend to agree with – that individuals operating inside IR35, where they pay employment taxes, must receive employment rights in return. Lord Forsyth put this into perspective, explaining that inside IR35 contractors qualify for “none of the rights of being an employee, or the tax advantages of being self-employed.” To address this problem, the Committee believes that the Government must deliver on its promise to implement the recommendations of the Taylor Review, “that calls for consistency in the taxation of labour across different forms of employment.”
Qdos CEO, Seb Maley, agreed: “Expecting contractors who are placed inside IR35 to work as ‘zero-rights employees’ is unrealistic, not to mention unjust and unfair. Tax status and employment rights must be aligned before the changes arrive, to at least hand contractors who pay employment taxes something in return.”
The arrival of the Lords’ report came on the day of the second reading of the Finance Bill, that didn’t contain IR35 reform. While speculation has been mounting that this could mean IR35 changes will be delayed again or scrapped altogether, the Treasury’s Jesse Norman made it clear that reform will go ahead: “The Government will introduce an amendment to the Bill in due course to legislate for a new commencement date of 6th April 2021. The Government will use this additional time to commission further external research into the long-term effects of the reforms in the public sector, with the intention that that research will be available before the reforms come into effect in the private sector in April 2021.”
The 67-page House of Lords report ‘Off-payroll working: treating people fairly’, also raises further concerns over the reliability of CEST and argues that the introduction of changes will likely “cause widespread disruption.” You can read the publication in full here.