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Government responds to IR35 petition

Government responds to IR35 petition

The government has reacted to the recently launched petition against the reform proposals around IR35 in the public sector.

The petition, which has been set up by Gareth P Rowell, is named ‘Scrap IR35 legislation reform proposals for public sector off-payroll workers’ and can be accessed here: https://petition.parliament.uk/petitions/170118?reveal_response=yes

To date, the petition has been signed by more than 26,000 people, prompting a government response once the 10,000 mark had been reached.

The detailed response from HM Treasury outlines many of the reasons for the reforms, and indicates that a key reason for their introduction is down to a small percentage of workers who were capitalising to their own benefit.

“Reforming the off-payroll working rules in the public sector will ensure that all public sector bodies, and those who work for them, pay the right amount of tax,” the response reads. “The off-payroll working rules, commonly known as IR35, are in place to ensure that where individuals would have been employees if they were providing their services directly, they pay broadly the same tax and National Insurance as other employees. However, the government estimates that currently only around 10% of people who should pay tax on at least part of their company’s income under these rules actually do so. This non-compliance is unfair, and the most recent estimate puts the cost to the Exchequer at £440m per year which, in turn, reduces the government’s ability to fund core services used by all such as the NHS.”

HM Treasury does acknowledge however that there are ‘many legitimate, commercial reasons for people to work through limited companies and for businesses to engage individuals in this way’. The response claims that the government does recognise the economic benefits of a flexible labour market, and doesn’t intend to prevent people working through their own companies, such as PSCs.

“The government does not believe that an individual’s decision to work through a company should necessarily affect the amount of tax that they pay when they are remunerated for their work,” the statement reads. “The government considers it crucial that public sector bodies make sure that both they and those who work for them pay the right amount of tax.”

The statement goes onto say much of what we already know regarding public sector organisations themselves being responsible to tax payments from off-payroll workers, with many set to simply add such workers to their main payroll.

“It’s important to note that this change does not introduce a new liability, but is designed to ensure that the current rules work as intended,” it reads. “Legislation to stop individuals reducing their tax bill by working through a limited company has been in place for more than 15 years. Furthermore, these rules will not lead to self-employed individuals paying employment taxes; the rules only apply to those who would have been employed if they were engaged directly. Indeed, many public sector bodies are already required to check that some off-payroll workers are paying the correct taxes.”

The statement also covers an individual’s status for employment rights, saying these will not change ‘as there is no direct link between employment taxes and these rights’. It does say however that those who wish to challenge their employment status for employment rights ‘can take their case to an employment tribunal whether or not they are classified as employed for tax purposes’.

The statement concludes by saying that the government recognises the changes may bring about an additional administrative burden for public sector companies, and says that as a response to this, HMRC is developing an online tool to help these organisations determine whether rules apply for each employee.

Though the response from the government is as would be expected, the petition may still have legs. If it reaches 100,000 signatures, it will be discussed in parliament, where some MPs may vocalise their opposition against the reforms.