Government’s response to IR35 report slammed

The Government has mostly rejected a House of Lords IR35 report which called for a complete rethink of its Off Payroll legislation to tackle ‘disguised employment’.

The report by the House of Lords  Economic Affairs Finance Bill Sub-Committee said the legislation was “riddled with problems, unfairnesses and unintended consequences” and that it has not worked properly throughout its 20-year history. IR35 has been rolled out to the public sector and will be extended to the private sector next April, despite mass protests from contractors.

It also said the Government has not sufficiently analysed the unintended behavioural consequences of the proposed reforms, for instance, it says some firms have made “blanket status determinations” on status and some have decided “not to use freelance contractors at all”.  It says privates sector contractors are already being laid off, despite the reforms’ delay and that many witnesses told the Committee that the rules have made them “zero-rights employees” with none of the rights of being an employee, or the tax advantages of being self-employed.

In its response, published today, the Government mostly rejected these concerns, for example, saying “organisations are free to decide how to structure their workforces and how to engage workers” in connection with concerns about blanket determinations. It added: “Engagement with organisations as part of the February 2020 review of implementation found that the vast majority had put in place processes to ensure accurate status assessments.” However, it agreed to consider additional educational support around status assessments.

Responding to concerns about the fitness for purpose of the Check Employment Status for Tax (CEST) tool, it said it disagreed with the Lords report and said the tool had been improved. It added: “Provided the information submitted is accurate and in accordance with the guidance, HMRC consider a determination from CEST to be definitive, with no further  considerations required.”

However, Dave Chaplin, CEO of contracting body ContractorCalculator, accused the Government of paying “lip-service to the fundamental flaws of the reforms pointed out to them by the Lords” and highlighted the comments on CEST.

“It is staggering that the Government continues to spout out the same debunked messages that the tool has been robustly and rigorously tested.  Everyone knows, from FOI requests, that they do not hold any detailed evidence to prove their claims,” he said.

He added that the Government’s claim that firms have not decided to ban the use of limited company contractors because of these tax reforms was “derisory”.  He stated: “It’s well known that it is the primary reason for a number of firms, including all in the financial sector, with many now moving lots of their project work abroad.”

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