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Lords voice their concerns about off-payroll working rules

27 April 2020
Issue: 4741 / Categories: News

The legislative framework to tackle tax avoidance by workers in ‘disguised employment’ has not worked properly throughout its 20-year history and the government should rethink this legislation completely. 

These are among the conclusions of the House of Lords economic affairs Finance Bill subcommittee’s report, Off-payroll working: treating people fairly.

The report finds that the government has not analysed properly the unintended behavioural consequences of the proposed reforms. Contractors are already being laid off, despite the delay to April 2021. 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 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.

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 report states this is too soon to give an accurate picture and suggests the government carry out this research after 18 months.

Lord Forsyth of Drumlean, chair of the subcommittee, said: ‘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.

‘The rules were deferred for a year because of the current crisis, but how prepared will businesses recovering from the crisis be to take on this extra burden on next year? The government needs to think this through very carefully.’ He called on the government to announce in six months’ time whether it will go ahead with them.

He added: ‘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.’

Qdos chief executive officer Seb Maley said: ‘This report is eye-opening and exposes the many flaws in the government’s plans for IR35 reform in the private sector. It makes the point 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 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.’

Noting that many businesses had already adapted their practices to be compliant with the new rules that had been due to come into effect on 1 April 2020, Chris Biggs, managing director of chartered accountant and consultancy firm Theta Financial Reporting, said: ‘If the off-payroll working rules are put on further hold or scrapped entirely, contractors and hiring companies will lose out, and the government needs to accept responsibility for the disruption caused. More needs to be done to lay out a transparent plan so businesses and contractors, who are already going through a turbulent period, can plan for their future.’

The subcommittee had voiced many of its concerns to the Treasury in a letter dated 26 March 2020 and asked for a response within ten days. The House of Lords published the letter on 17 April but gave no details of any response received from the Treasury.

House of Lords subcommittee report: tinyurl.com/yc9fub5b; Letter: tinyurl.com/hlfbscir35let
Issue: 4741 / Categories: News
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