The House of Lords Finance Bill Sub-Committee has called for evidence in regard to the IR35 reform, specifically requesting practical experiences from the contracting community. By opening up the floor to the wider industry that either do contract or work closely with contractors, it’s clear the Lords are looking for a more accurate representation of how the off-payroll rules are affecting the self-employed. The deadline for submissions is 25th February.
Lord Forsyth of Drumlean, Chair of the Finance Bill Sub-Committee, was explicit in his aim to garner a well-rounded view of the legislation, stating: “We are interested in how this change will work in practice, and how it relates to wider changes in working arrangements. To inform our work we want to hear from as broad a range of people and organisations as possible. If you have a view on off-payroll working rules, please let us know what you think."
This call for evidence may seem like cause for (albeit tentative) celebration, but how much will this inquiry realistically change? We asked some industry experts for their opinion on the announcement.
What will the House of Lords IR35 reform inquiry focus on?
The published information from the House of Lords states that the inquiry will focus on both the public sector IR35 reform, which was rolled out back in 2017, and how the legislative changes are impacting the private sector prior to its official implementation on 6th April 2020.
Stated points of interest appear to put the IR35 ‘experience’ at the forefront of this inquiry, as opposed to the revenue leak these off-payroll changes will supposedly plug. Questions like ‘What has been the experience of the new rules in the public sector?’, ‘What effect will these new measures have on a chain of contractors?’, and ‘Are the tests for determining employment status sufficiently clear to both engager and worker?’ bode well for the Lords’ intentions. However, the turnaround time in which any substantial improvements to the IR35 reform are to be made is an objectively small window.
Andy Vessey, Head of Tax and resident IR35 specialist at Larsen Howie, raises this as a concern.
“This invitation to provide written evidence is, while welcome, rather rushed; the closing date of 25th February is just two weeks before the scheduled Spring Statement, where it’s expected the intentions for IR35 reform will be announced,” Vessey says. “It’ll have to be a considerably rapid turnaround to make any major decisions other than a postponement.”
“Although there is certainly a precedent for the government postponing legislation in the past – i.e. Making Tax Digital - I would be surprised if this were to happen with the IR35 reforms. The Lords would have to make a very compelling case indeed that the reform is likely to have a detrimental effect on UK labour, and even then, they’re simply suggestions.”
IR35 reform has ‘demonised’ contractors
While it’s debatable as to how much influence the Lords may have on the legislation as it stands, there’s no denying that such an inquiry is very much needed. The private sector has suffered an epidemic of blanket employment status determinations, culminating in considerable contractor culls across the financial, pharmaceutical, and tech sectors – all before the IR35 reform has even been officially instituted.
“In the last four weeks, it has become painfully clear that, despite HMRC's reassurances to the contrary, those who are already compliant with the legislation are being seriously impacted by this poorly communicated and executed reform,” Poyser says. “The self-employed have been demonised, and many large organisations see them as a risk.”
“The true impact of the off-payroll reforms is now starting to come to light,” he continues. “We've learnt of work leaving the UK and being offshored, regulatory projects lurching into risk as contractors are terminated and business-critical projects falling behind schedule. Anxiety is rising in the self-employed community and many with protected characteristics are being locked out of the labour market once more.”
“Many of these impacts were predicted in the 2019 consultation but dismissed. The current review is not fit for purpose. That's why we welcome the intervention of the Lords Select Committee to properly assess the true impact of this poorly managed reform. It's imperative that the true business case across the whole economy is considered in a measured and comprehensive manner. The cost of getting this wrong could cost UKPLC far more than the tax revenues the Treasury hopes to raise.”
‘Poor communication from HMRC’ is biggest threat to contractors in IR35 reform
One of the biggest pain points around the IR35 reform is the lack of communication or instructive guidance from HMRC. Many contractors are still unaware of the changes, and many more end clients are unsure how to proceed; it’s easy to see (though we certainly don’t condone it) why large organisations are taking the risk-averse route of simply pushing contractors to PAYE or umbrella solutions. It’s this exact lack of communication that’s caused so many problems for contractors says Grant Speed, Global Managing Director at Odgers Interim.
“The fact that a House of Lords committee has been called to review IR35 is indicative of the mounting opposition from within the industry to what is, quite frankly, an ill-thought-out piece of legislation,” Speed says. “Whilst all employees should pay the correct amount of tax, the committee needs to recognise that HMRC has failed to implement the new off-payroll working rules appropriately.”
“Because of the poor communication from HMRC, commercial organisations don’t have a comprehensive understanding of how to actually implement IR35,” he continues. “What’s more, HMRC has assumed that the people responsible for making IR35 determinations have the necessary employment and tax experience to manage reform within their organisations – which is simply not true.”
“Despite this, HMRC has ploughed on with legislation and turned a deaf ear to some very obvious flaws in its implementation, one of which is a highly ambiguous assessment tool that provides more confusion than it does clarity.”
Contractors, recruiters, and end clients should continue to prepare for IR35 reform
Yet again, all points of the supply chain may be asking if they should still prepare for the new off-payroll rules. The short answer is yes; until anything concrete comes from this inquiry, you should continue to get ready for the reform.
“Whilst it is positive that the House of Lords is looking into the IR35 reforms, I wouldn’t expect sweeping changes to be made,” says Matt Tyler, IR35 Consultancy Manager at Larsen Howie. “This isn’t the first time that the government have (in one way or another) requested feedback on suggested changes, and I suspect that it won’t be the last time they cherry-pick from the feedback provided.”
“I suspect there may be some quality of changes made to the legislation, but as has been advised previously, don’t pin your hopes on them pushing back or cancelling the reform,” Tyler continues. “If that does happen then it would be a nice surprise, but if it does not and you have pinned your business strategy on that happening, you could well find yourself in a bit of a quandary.”
For those that wish to make their voice heard, you can send a written submission to the House of Lords Finance Bill Sub-Committee here. Larsen Howie will be responding to the call for evidence before the 25th February deadline.
How Larsen Howie can help you get ready for the IR35 reform
There are steps you can take, no matter where you sit on the supply chain, to make sure you’re ready for the changes; contract and working practices reviews are the first port of call while educating yourself about what the off-payroll rules mean for you is crucial to staying on the right side of the legislation.
Larsen Howie offers a range of contract and working practices reviews – you can find out which option would be best for you here. We also offer IR35 investigation insurance with representation from Andy Vessey should it go to tribunal, as well as training and consultation for businesses that wish to continue working with their invaluable contractor workforce.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news, and contractor guides.