IR35 reform confirmed for 2021 after House of Commons debate for further delay

Limited company contractors and anti-IR35 campaigners alike are left disappointed but unsurprised by this inaction, with many hoping the 12-month…

Author Photo by Kingsbridge

Limited company contractors and anti-IR35 campaigners alike are left disappointed but unsurprised by this inaction, with many hoping the 12-month delay brought about by the Coronavirus pandemic would be used to properly review and amend the off-payroll rules. Financial Secretary Jesse Norman made it clear that there is no intention to revisit the legislation, despite the recent scathing House of Lords’ report and ongoing outcry against the tax measure.

MPs argue against IR35 reforms

MPs of all colours spoke out against the IR35 reforms during yesterday’s debate, with many referencing back to the House of Lords report that has gone unactioned by the government so far. Unresolved issues with blanket determinations and HMRC’s CEST tool were also raised.

Shadow Financial Secretary Dan Carden asked if Norman would “respond to concerns most recently set out by the House of Lords Economic Affairs Finance Bill Sub-Committee that lessons have not been learned from the roll-out to the public sector, and will he look again at serious problems highlighted with the “check employment status for tax” online tool?”

David Davis, MP for Haltenprice and Howden, reflected that “the report found a system riddled with unfairness and unintended consequences and called for a wide-scale independent review – not just a few research reports – focused on how the reforms would affect the wider labour market and the costs that would be forced on businesses”, and strongly recommended the government avoids creating “zero-rights employees.”

“In my constituency, many people working in IT are already finding that their contracts are not being renewed,” said SNP Shadow Secretary Alison Thewliss. “This is having an impact on their industry because of the ongoing uncertainty with this policy.  The House of Lords makes it clear in no uncertain terms that IR35 is not a good base to build on. Yes, it has been in place for 20 years, but for 20 years it has been plagued with these types of problems and by bolting more on to it and trying to reform it, the Government are building a house on the sand.”

Despite agreeing that the Taylor review (which was heavily referenced in the Lords’ report) made some good points, Jesse Norman ruled out a further review or delay.

“I encourage all Members who would like a further delay to reflect on the points that I made about the intrinsic unfairness of taxing two people differently for the same work, the disparity that it would continue between the private and public sectors, and the significant fiscal cost that would be involved in doing so,” he said. “Alison Thewliss [also] spoke of a review. She should be perfectly clear that I have at no point discussed a further review. We had a review earlier this year, contrary to what Sir Edward Davey said. We are not talking about a further review.”

No further delay or review to IR35 reforms says Jesse Norman

The Financial Secretary’s firm stance against another review of or further delay to the IR35 reform is disappointing but unsurprising to many in the industry.

“Despite the fact that the government remains unmoved by the impassioned pleas of all parties for a delay, they are still not answering the question on employment rights, despite agreeing with the Taylor Review,” says Rebecca Seely Harris, employment status expert and limited company contractor herself. “It is clear that the government are determined to press ahead with the reforms regardless. This will have a dramatic effect on the flexible economy at a time when the country needs the flexible workforce.”

Andy Vessey, IR35 specialist and ex-HMRC inspector, gives some insight into why the government has taken this stance.

“Coming from a cold, hard numbers angle, there will be a massive void in the economy once we come out the other side of this crisis, and that will have to be filled by a rise in taxation of currently around 5% across IT, NIC, CT & VAT, as well a cut in public spending,” he says. “If Rishi Sunak resists tax hikes, then increased tax revenue will have to come through a swell in compliance. Part of that will be from PAYE & NIC, which comprises over 50% of the total tax revenue.”

“HMRC has told us that they collected an additional £250m from the public sector in 2017/18 as a result of the off-payroll rules,” Vessey continues. “The government forecast that the reforms will raise £4.1bn – an amount too large to viably ignore, even if we take into account a certain measure of hyperbole. This has to be balanced, however, with reigniting the engines of the economy and the Chancellor has some difficult decisions to make come the autumn when he delivers the second Budget.”

“Because of the need to generate increased tax revenue, one might reasonably speculate that there will be no further stay of execution for the off-payroll rules, despite it being clear that they are damaging the UK’s valuable flexible workforce whom we’ll need now more than ever to get the economy moving again.”

How can I prepare for IR35?

For the time being, the delay to the reform dictates that contractors must determine their own employment status for another year – this means that the liability of a wrong determination still sits with you as the contractor for that time too.

It’s crucial that you understand your IR35 position with every contract you take on. Getting a professional contract and working practices review is pivotal to making sure you know where you stand, while IR35 investigation insurance is also a worthy investment and can provide a lifeline should you fall foul of an HMRC enquiry.

A good policy will include an IR35 status review, as well as cover unpaid tax debts, interest, fines, and legal fees, and will flex with the reform roll out to cover the contractor, recruiter, and end client. Our IR35 Protect product offers the above in one comprehensive package.

Related topics

Contractors IR35