Lords committee chair blasts government’s “nonsense” over IR35

Lords committee chair blasts government’s “nonsense” over IR35

The House of Lords Economic Affairs Finance Bill Sub-Committee report, published today, took aim at the government and HMRC for considering the issue of off payroll working too narrowly

Lords committee chair blasts government’s “nonsense” over IR35

IR35 is riddled with problems, unfairness and unintended consequences and has not worked for 20 years, according to Lord Forsyth, chair of the House of Lords Economic Affairs Finance Bill Sub-Committee.

In the wake of the pandemic, the government decided to defer implementation of their plans to extend the off-payroll rules (commonly known as IR35) to the private sector until April 6 2021. At the time of the announcement the government stressed this was a deferral not a cancellation.

However, the House of Lords sub-committee has called on the government to “completely rethink” the legislation and announce in six months what their plans are as the economic fallout from coronavirus continues.

In response to the report, a treasury spokesperson told the Financial Times: “It is right to ensure that two individuals sitting side-by-side and doing the same work for the same employer pay the same tax and national insurance contributions.

But Lord Forsyth, in an interview with Accountancy Age, says it’s “clearly a nonsense”.

“For people who are employed, they have all the benefits of employment, they have the benefits of sick pay and holidays and so on, and contractors do not,” he adds.

CEST tool ‘completely inadequate’

One of the major criticisms in the report was on the CEST (Check Employment Status for Tax) tool. It is a digital tool produced by HMRC to help firms determine whether contractors fall inside or outside of the updated IR35 rules.

Lord Forsyth says the tool has led to firms making blanket decisions not to hire contractors or to put all contractors under the same tax bracket when that may not be the correct decision.

“The impact on genuine contractors has been devastating,” he says.

“It is so difficult to apply the tests. And because it’s so onerous for clients, many of them have simply taken a blanket view that they’re not going to use contractors or they have made some cuts to the amount that they pay them in order to compensate for the fact that they may be liable for national insurance costs.”

Most worrying was that the CEST tool could create tax determinations which were later found to be wrong when challenged in the courts.

“The evidence we received from tax barristers and others, was that the CEST tool would actually come up with some answers which were contrary to answers which were given by the courts… So, the CEST tool is completely inadequate,” Lord Forsyth says.

Implement Taylor review

The sub-committee instead urged the government to implement the recommendations of the 2017 Taylor review which argued there should be three categories of worker: employed, self-employed and “dependent contractor”.

The report said that while in principle they agree with the government’s aims of trying to ensure greater fairness in the tax system and of preventing some contractors gaining an unfair tax advantage, it was “concerned” the government had not done more to tackle the problems with IR35.

There was also “significant disappointment” that work on the Taylor review had stalled, the report said.

“What the Taylor report was saying is, with a much more flexible labour market and different forms of employment, it’s necessary to have defined employment status and a tax system that reflects that,” says Lord Forsyth.

“There are different ways of achieving this. Perhaps it means that people have to pay more in national insurance or perhaps there is some kind of levy, but what people need is certainty rather than uncertainty.

“It’s just not good enough for the revenue to devise means of maximizing their revenue without actually taking account of the unfairness that that puts on people who may not have full employed status,” he adds.

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