The House of Lords Economic Affairs Finance Bill Sub-Committee published its report on Off-payroll working rules, also known as IR35. The Committee concluded that the framework of the IR35 rules are flawed.
On 17 March 2020, in response to the economic effects of the Covid-19 pandemic, the government announced that it was postponing the introduction of reforms to off-payroll working by 12 months. These reforms would have made large- and medium-sized organisations in the private and third sectors responsible for determining the employment status of contractors for tax purposes and for ensuring that, where relevant, employment taxes were paid.
In February, the Committee announced that it would investigate the IR35 rules and issued a call for written evidence as part of the inquiry.
The report, ‘Off-payroll working: treating people fairly’, showed that 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.
Lord Forsyth of Drumlean, 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.”
“We call on the Government to announce in six months’ time whether it will go ahead with reintroducing these proposals,” Forysth continued. “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.”
Dave Chaplin, Director of The Stop The Off-Payroll Tax Campaign and CEO of ContractorCalculator said: “I applaud the Lords findings as they have clearly seen the Off-Payroll Tax for what it is – ill-thought through, ideologically led, unevidenced, cruel, misguided and ultimately un-fit for purpose. A holistic approach now needs to be taken to treating the self-employed fairly in the tax system.”
Seb Maley, CEO of IR35 specialist Qdos, said, “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.”