House of Lords IR35 review
By PaperRocket Accounting, Apr 29 2020 08:24AM
With the ongoing coronavirus crisis, what was the hot topic of 2019, IR35 reform, has now taken somewhat of a back seat. With the reform in the private sector due to take affect from 6th April 2020, on 17th March, it was announced that this would be postponed for a year due to the uncertain times we find ourselves in.
However, earlier this year, the House of Lords launched an enquiry into the proposed reforms, inviting members of the public affected by them to have their say. This review has now been concluded and their findings published- and it’s safe to say, their opinion on the reform is damning.
The House of Lords’ Report- the main points
Published on 27th April 2020, the report states that the reform is plagued with ‘problems’, ‘unfairness’ and ‘unintended consequences’. Their main issues are:
The flawed IR35 framework
They state that IR35 rules have never worked satisfactorily in their 20-year history, leading them to conclude the framework itself is flawed.
The Government not taking into account concerns raised
It is said that the Government have considered the issue too narrowly and underestimated the costs that this would bring to businesses, as well as not considering or analysing concerns raised and the affects that the reforms could have on the wider marker.
Contractors left in a ‘halfway house’
They acknowledged that as a result of blanket status determinations, many contractors are effectively being treated as ‘zero rights employees’, i.e. they are taxed as an employee but do not receive employment rights.
In their report, the Committee list out several potential alternatives to the proposed reform, including:
• A flat rate withholding tax
• Introducing a new style of limited company, ‘Freelancer Limited Company’
• A levy on using contractors
• Addressing the difference in NICs between the employed and self employed
• A statutory employment test
They welcome the delay (to April 2021) brought about by the Covid-19 outbreak as it would place even more burdens upon businesses in these trying times. However, they implore the government to use this additional time to re-evaluate the legislation. They have recommended that the Government commissions an independent review into the effects of the same reforms in the public sector, as well as finally implement the recommendations of the Taylor Review of modern working practices. In the long term, they implore the Government to reassess the entire IR35 framework and consider the alternatives provided in the report.
They have also said that the Government should announce by October 2020 whether the reform will indeed be going ahead in April 2021.
We can only hope that the Government heed the advice given by this Committee.
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