A Further IR35 Delay Is Unlikely

Further to our last article on IR35, the Government has made it clear that a further IR35 delay is unlikely.

Further IR35 Delay Is Unlikely

The Government's plan to extend IR35 to businesses with 50 or more employees in the private sector, a proposal described as potentially “catastrophic for the economy", had been due to come into force on the 6th April 2020. However, on account of the coronavirus lockdown, the Government put this back until the 6th April 2021.

In a report entitled, "Off-payroll working: treating people fairly" dated the 27th April 2020, the chair of the House of Lords Economic Affairs Committee Finance Bill Sub-Committee, Lord Forsyth of Drumlean stated: "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. 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. Even if the economy were to begin to recover in the next 12 months, the severity of the economic impact of Covid-19 is so great that it would be completely wrong for the government to impose a new burden on business in the form of the existing off-payroll proposals....business is likely to need considerably longer than a year to recover from the disruption caused by the Covid-19 pandemic. The government should announce by October 2020 whether it will indeed implement the off-payroll rules in April 2021, or whether any ongoing impact to the economy resulting from the Covid-19 pandemic will require their implementation to be delayed further. In the longer term the government should reassess the flawed IR35 framework, and give serious consideration to the fairer alternatives to the off-payroll working rules which we lay out in this report." The Committee instead advised that the Government adopt the recommendations set out in the 2017 Taylor Review, for instance by making "the taxation of labour..... more consistent across different forms of employment [which would be fairer]. We believe that the Taylor Review proposals offer the best long-term alternative solution to the off-payroll rules, and provide an opportunity to consider tax, rights and risk together." 

In its response to the House of Lords Committees report, however, the Government rejected the Committees findings and asserted that a further IR35 delay is unlikely. It stated: "The Government firmly believes that reforming the rules and transferring the responsibility for determining whether they apply from individual contractors to the firms that engage them will be a step towards greater fairness in the tax system....It is estimated that non-compliance with the off-payroll working rules will cost the Exchequer £1.3 billion per year by 2023/24. The reform protects the tax base, and therefore revenue needed for vital public services, but importantly it also ensures fair tax treatment of individuals across the labour market....any additional delay would have significant drawbacks; it would not address the fundamental unfairness of taxing two people differently for the same work, and it would further prolong the disparity between the private and voluntary sectors and the public sector, where the rules have been in place since 2017. There is a risk that this continuing disparity could begin to cause retention difficulties in the public sector, as contractors may choose to accept only private sector contracts, as well as being unfair to contractors working in the public sector."

Finance Bill Amendment Fails

Following on from the Government's response, despite a rebellion by 13 Conservative MP's, MP's voted on the 1st July 2020 against an amendment to the Finance Bill that would have delayed the extension of IR35 until 2023/24. Accordingly, a further IR35 delay is unlikely. 

Dave Chaplin, the CEO at ContractorCalculator, believes that all avenues for opposing the IR35 extension have now been exhausted, and accepts that a further IR35 delay is unlikely. He stated: "Two weeks ago, a Parliamentary vote sealed the fate of the draconian Off-Payroll Tax, confirming an April 2021 private sector extension....The outcome marked a disappointing end to a four-year fight to put an end to the damaging Off-Payroll Tax...Unfortunately, all possible avenues through which to prevent the Off-Payroll Tax have now been exhausted, and Government has once again applied the sticking plaster approach to this flawed legislation...Moving forward, the market now needs to prepare and, with careful planning, firms have nothing to fear and can hire freelancers compliantly....We have already had a dress rehearsal, and many firms and contractors saw what would happen if they did not prepare properly. We now need to work together to avoid a cliff edge scenario....Over the next year we will be seeing more clarity from the courts, as binding authorities are released – and these are likely to favour the self-employed and provide a legal bedrock upon which firms can compliantly hire contractors, without fear of later repercussions."