Government bury its ‘head in the sand’ in response to House of Lords IR35 report

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Government bury its 'head in the sand' in response to House of Lords IR35 report

The Government’s response to the House of Lords IR35 report has been to bury its “head in the sand” with no further delays to the legislation to be made.

The House of Lords on 04/02/20 formed its Economic Affairs Finance Bill Sub-Committee which produced the report regarding IR35 ‘Off-payroll working: treating people fairly’ and exposed “the many flaws in the Government’s plans.”

An issue that arose from the Government’s response to the Lords report, was its defence of the Check Employment Status for Tax (CEST) tool, which has come under fire for being ineffective.

The Treasury and HM Revenue & Customs (HMRC) believes right now the Government cannot afford to delay IR35, as the issue surrounding the legislation has already led to a loss of income for public services.

Seb Maley, CEO of Qdos, who offers insurance and tax advice for the self-employed said:

It’s clear from the Government’s response that it still has its head buried in the sand when it comes to IR35, with recommendations in the Lords report having been all but ignored. From what I can see, the few promises made by the Government have been made before, with no positive change resulting from them.

I find it incredible, but unsurprising, that the Government refuses to acknowledge CEST’s failings. Time after time HMRC’s IR35 tool has been exposed as unreliable and incapable of assessing tax status accurately, but still, the Government claims that it’s fit-for-purpose and up to the job. In reality, it isn’t.

The Government hasn’t directly addressed the issue of zero-rights employment either – an unfairness highlighted in the Lords report. Zero-rights employment occurs when a contractor is deemed inside IR35 and is therefore taxed at a similar rate to an employee but receives no employment rights in return. This is an injustice that needs resolving immediately.

While this response is inadequate and frustrating, it doesn’t change the overall picture. IR35 reform is arriving in the private sector next April, which means businesses must prepare for the changes immediately. Despite being narrow-minded and short-sighted, the reform can in fact be managed with the right approach.

Dave Chaplin, CEO of contracting authority ContractorCalculator said:

The Government has simply paid lip-service to the fundamental flaws of the reforms pointed out to them by the Lords.  Today’s report lacks any substance and gives light promises that HMRC will work to help businesses to prepare.  Don’t hold your breath.

As for its comments on CEST, it is staggering that the Government continues to spout out the same debunked messages that the tool has been robustly and rigorously tested.  Everyone knows, from FOI requests, that they do not hold any detailed evidence to prove their claims.  It’s interesting to note that mutuality of obligation was not even addressed – it’s a key element of case law and it was omitted from CEST.

The claim that firms have not decided to ban the use of limited company contractors because of these tax reforms is derisory.  It’s well known that it is the primary reason for a number of firms, including all in the financial sector, with many now moving lots of their project work abroad.

The concerns raised about non-compliant umbrella companies are valid ones.  If firms are not engaging with contractors, and instead want to hire temporary workers, then the safest form of hire is to simply use fixed term employment contracts and put them on their own payroll.  If firms want an employee, and give them all the rights that come with employment, then hire one.

It would appear that the threat of losing the vote on the tabled amendment resulted in the Treasury and HMRC having to make considerable assurances that the implementation would not have an adverse effect on the UK’s valuable sector workforce. They can make as many assurances as they want – the legislation is set to have a hugely damaging effect on contractors, the firms that hire them and the economy as a whole.

On 19/05/20 David Davis, the Conservative MP for Haltemprice and Howden and other backbench MPs tried to defer IR35 but to no avail, as the Labour party declined to vote on the amendment. The Government has often made a decision to go ahead with the rollout of IR35 despite numerous reports published and amendments made to delay it.

The only thing that successfully delayed IR35 was the spread of COVID-19, as it caused the legislation to be set back by a year to 2021.

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