Parliamentary Report urging rethink over IR35

The Government should reconsider the planned changes to private sector IR35 off-payroll rules, a parliamentary report has said, claiming that the change as it stands is “riddled with problems”. The House of Lords Economic Affairs Finance Bill Sub-Committee has called on the Government to use the extra time caused by the delay to the rollout of the changes – which was pushed back by a year because of the coronavirus outbreak – to “completely rethink the legislation”.

In a report: Off-payroll working: treating people fairly, the committee claims the government had not sufficiently analysed the “unintended behavioural consequences” of the reforms. It called for an independent review of how the reform was rolled out in the public sector and its impact on the labour market before any changes are implemented in the private sector.

Under IR35, if a contractor is deemed to carry out similar or the same work as a permanent staff member, their employer is required to deduct income tax and national insurance contributions as if they were an employee. The legislation was introduced to ensure workers undertaking similar roles paid the same tax regardless of whether they were an employee or contractor.

The changes to IR35 in the private sector will shift the responsibility of assessing which contractors fall into this category to employers. The new rules have applied to public sector employers since 2017 and were originally due to come into force in the private sector at the start of this month, but this has been delayed until April 2021 because of the coronavirus pandemic.

The report also said the committee had heard evidence that private sector organisations – many of them large businesses – were already refusing to engage any freelance contractors so as to avoid navigating the complex legislation, and questioned whether HMRC’s check employment status for tax tool for identifying whether a worker falls inside or outside the legislation was fit for purpose.