Reforms to the off-payroll working rules, which will see them extended to the private sector next year, are to go ahead as planned after an amendment to the Finance Bill proposing a two-year delay was defeated in the House of Commons
The amendment, brought by a cross-party group of MPs headed by Conservative MP David Davis, was designed to delay IR35 changes until 2023, but was defeated by 317 votes to 254.
The reforms, which pass responsibility for determining a contractor’s status from the individual to the organisation which employs their services, were first rolled out in the public sector in 2017.
They were set to be implemented for large private sector companies in April 2020, but at the start of the Covid-19 crisis this was delayed until 2021 because of the disruption caused by the pandemic.
The move to introduce new IR35 rules in the private sector has proved highly controversial, amid claims that the regulations are too complex and that HMRC’s online tool check employment status for tax (CEST) used to determine whether or not they apply is flawed.
In March, ICAEW’s tax faculty said the delay provided an opportunity for reflection on the detail of the measure itself and to undertake a comprehensive review, encompassing the taxation of the self-employed.
It singled out a number of issues that needed to be addressed including contractors being made to pay the cost of employer national insurance contributions; HMRC’s strategy for dealing with certain non-compliant entities; aligning employment and social security rights; and whether contractors who are deemed employees under IR35 rules should have the right to receive statutory payments like maternity pay.
In April, the House of Lords economic affairs Finance Bill sub-committee called for a complete overhaul of the ‘inherent flaws and unfairnesses’ in the legislation following its own review.
The committee suggested that rather than look at IR35 in isolation, the government should give consideration to a wider overhaul of how to make treatment of workers, employees, the self employed and contractors more consistent.
Lord Forsyth of Drumlean, committee chair, said: ‘The committee welcomed the government's decision to defer these off-payroll working rules in the wake of the Covid-19 pandemic.
‘However, our inquiry found these rules to be riddled with problems, unfairnesses, and unintended consequences.
‘The potential impact of the rules on the wider labour market, particularly the gig economy, has been overlooked by the government. It must devote time to analysing all of this. A wholesale reform of IR35 is required.
‘The rules were deferred for a year because of the current crisis, but how prepared will businesses recovering from the crisis be to take on this extra burden on next year?’.
Speaking following the defeat of the amendment to the Finance Bill, Dave Chaplin, director of the Stop the Off-Payroll Tax campaign, said this meant that efforts to prevent IR35 from being extended to the private sector had failed.
‘It’s extremely disappointing that after four years’ campaigning, we have not achieved our primary aim of stopping the legislation.
‘We, including our 4,000 campaigners, did everything we could, while the House of Lords Finance Bill sub-committee’s report into the so-called reforms accurately detailed the damaging effect these changes will have on the UK’s flexible workforce,’ Chaplin said.