Was it just over a month ago that the government announced it was deferring the implementation of the roll out of IR35 to the private sector? Indeed it was, but deferral does not mean removal. However, the Economic Affairs Committee Finance Bill Sub-Committee of the House of Lords has just published (yesterday, 27th April) a weighty, 67 pages report that is a stinging criticism of the whole IR35 concept. The summary of this report cuts to the chase…
“It is right that everyone should pay their fair share of tax. But the evidence that we heard over the course of our inquiry suggests that the IR35 rules— the government’s framework to tackle tax avoidance by those in ‘disguised employment’— have never worked satisfactorily, throughout the whole of their 20-year history. We therefore conclude that this framework is flawed.”
We then have the committee chairman, Lord Forsyth of Drumlean, saying:
“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 (sic), 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?”
Other key comments in this report include: CEST “Falls well short of what is required”,
“Government is privatising tax compliance”, “Evidence of blanket assessments being applied”, and “Large scale businesses insisting on the use of umbrella companies”.
Their Lordships also emphasise the total unfairness of being treated as an employee without employment rights and say this should be addressed. They believe that rather than treat IR35 in isolation, the government should conduct a far wider review that seeks to make treatment of workers, employees, the self-employed and contractors more consistent. This will involve a more speedy implementation of the proposals of the Taylor Review, but before you cheer too loudly, be aware that these may well mean tax rises for the self-employed in exchange for some benefits.
Let me put it in the simplest possible terms: the new Off-payroll working rules are, as I have been saying for some time now not fit for purpose. As we, hopefully, see the economy being released from its straitjacket, with, hopefully no concomitant large-scale increase in Covid deaths, this is one of the items in the government’s ‘normal’ in-tray that requires reasonably urgent action. I fully accept that the Treasury will have other more pressing issues to contend with given the financial Armageddon that the UK economy and many businesses have faced and will continue to face, so if this realistically cannot be done by the time of the Budget later in the year, then at least another year’s deferral to the introduction of Off-Payroll working should be applied. There is simply no point in introducing a system that has been so widely condemned.
Stewart McKinnon, Director, M&S Accountancy & Taxation