The House of Lords economic affairs finance bill sub-committee’s report urges the government to rethink IR35 reforms

27 April 2020

The House of Lords economic affairs finance bill sub-committee has published its report, ‘Off-payroll working: treating people fairly’. The report suggests that as the outbreak of coronavirus has placed a delay on the government’s plans to extend off-payroll working rules to the private sector, the extra time should be used to completely rethink the legislation, as currently, it is unfair on both businesses and contractors.

The report argues that the unintended consequences of the proposed reforms have not been given enough consideration and that contractors are already suffering, with many being laid off ahead of the changes that will now not take effect until 6 April 2021.

The report also refers to significant changes to the self-employed market over recent years, with the rise of the ‘gig economy’, which has resulted in a substantial increase to the number of lower-paid self-employed workers. The tax system, therefore, needs to adapt to these changes but the resulting challenges created extend much further than the tax system.

The sub-committee heard reports from individuals who stated that, as a result of the reforms, they would be “zero-rights employees”, as they wouldn’t be entitled to any of the rights awarded to employees, and would no longer benefit from the tax advantages of being classed a self-employed.

The committee has reminded, and urged, the government to stand by its promises to implement recommendations of the Taylor Review, one of which related to the consistent taxation of labour across different types of employment, and a balance between tax, rights and risk.

The government has confirmed its intentions to investigate the effects of the reforms to off-payroll working rules six months after they have been implemented, but the committee argues that this is too soon, and suggests that the government instead conducts research 18 months after the changes are introduced to get a more accurate picture of the effects they have.

Chair of the committee, Lord Forsyth, 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.

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. We call on the Government to announce in six months' time whether it will go ahead with reintroducing these proposals.

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."


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