Lords Report Urges Government To Rethink The IR35 Legislation

As per the recent report titled “off-payroll working: treating people fairly” issued by the House of Lords economic affairs committee, the government proposal of extending the off-payroll working rules into the private sector was heavily criticised and urged them to use this valuable time in rethinking of legislation as well as in taking the decision of again extending its implementation further. Not only the proposal is criticised, but also declared as unfair & of unintended consequences as per the enquiry made by the House of Lords. The report also concluded that the government’s IR35 framework has failed to tackle the tax avoidance from the extra labour that comes under “Disguised employment” and never proved to be satisfactory throughout its history of 20 years. Hence, the economic affairs committee report concluded the framework as ‘completely flawed’.

What Chairman of Economic Affairs Finance Bill committee “Lord Forsyth of Drumlean” says?

Chairman of Economic Affairs finance bill committee “Lord Forsyth of Drumlean” highlights the following points –

• We welcome the Government’s decision of postponing the off-payroll working rules into the private sector due to COVID-19 pandemic.
• After making enquiry, we found that the off-payroll working rules are problematic, unsatisfactory, unfair and of unintended consequences.
• It looks like that Government did not prepare themselves for the rules and overlook its impact on the wider labour market and specifically on the gig economy.
• Now due to COVID-19 pandemic, Government has enough time to look into these rules and analyse them to come with a better structure in relation to IR35.

Highlights of The Economic Committee Report

The following points are highlighted in the economic committee report by the House of Lords –

1. Off-payroll working rules are made on a faulty framework.
2. Faulty payroll working rules did not take all concerns of stakeholders into consideration.
3. It looks that off-payroll changes will cause extensive division.
4. The government has underestimated the business cost of implementing the changes.
5. Government should use the delay time in analysing and solving the uncovered problems.
6. It did not sufficiently analyse the unintended behavioural consequences of the proposed reforms.
7. It also raises the question on the CEST tool – once again questioning its usefulness in identifying the employment status correctly.

What director of “Stop the off-payroll tax campaign” and CEO of contractor calculator “Dave Chaplin” says?

Director of “Stop the off-payroll tax campaign” and CEO of contractor David Chaplin highlights the following points –

1. He praised the Lords report and said that after enquiring about off-payroll tax, House of Lords gets cleared about what off-payroll tax is and found that it is un-evidenced, misguided, cruel & unfit for the purpose it is made for.
2. He also said that - we can only hope that the concerns raised by the lords should be taken seriously by the MP’s and the result may postpone the legislation and a proper review of IR35 should be held by them before the election. A holistic approach is the need of the hour to give fair treatment to self-employed persons in the tax system.
3. Concluded by saying - The legislation is obviously contentious amongst MPs given that it was pulled out of the order of today’s reading of the Finance Bill. UK industry is currently on its knees due to the COVID-19 crisis and will need the help of the UK’s flexible workforce to get back on its feet as we emerge from this crisis and that is going to take some time. Now is not the time to apply a straight jacket.

Why is it needed now?

Currently, the whole UK economy is going through the economic impact of COVID-19. The situation is getting worse as the coronavirus cases are increasing in UK day by day. So, this is not the right time to implement a new burden on businesses in the form of the existing payroll proposals. If we hope that economy will recover from the crisis in the coming 12 months then also it is not right to impose off-payroll working rules into the private sector because self-employed persons might not be ready for the same. Hence, government needs to think about its implementation very carefully.

The economic committee recommended the government to take 6 months’ time i.e. till October 2020, in order to take decision that whether or not the off-payroll working rules will be implemented in April 2021 or it will be extended further due to the on-going impact of COVID-19 on the UK economy.

We have always believed that off-payroll rules are unnecessary and have been designed only to achieve Government’s purpose of taxing everyone under PAYE. The rules are grossly unfair because for tax purposes it treats the contractor as an employee but does not given them any employment rights.

DNS fully supports the “Stop the off payroll tax” started by Dave Chaplin (CEO of contractor calculator) to stop the implementation of off-payroll tax into the private sector and also urge everyone to make the difference by signing up to the campaign here – https://stoptheoffpayrolltax.co.uk/sign-up/

Also Read :

1. Budget 2020 summary
2. Coronavirus Business Interruption Loan Scheme (CBILS)
3. How to get Coronavirus grant from the government for small businesses?
4. Off-payroll in Private Sector: Review launched but reforms to go ahead

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.