We have reported previously on the IR35 rules and how in our opinion these are highly flawed and unnecessarily complicated, and a persecution of a highly beneficial sector to the United Kingdoms economy.
It would now seem that the House of Lords is in agreement with us. In their comments they show a clear understanding that the government is attempting to have self-employed taxed the same as employees even though they do not have any employment rights.
The rules are already in place with regards to public sector organisations and the intention is to extend this to private companies whereby the employer, in absence on any training will be required to assesses whether temporary contractors employed via personal service companies should be treated as employees or not. As the employer will be open to challenges by HMRC and possible liability to pay any unpaid tax and contributions after the contract has ended, then it is not an unfair statement to suggest that many will choose to classify the contractor as an employee erroneously merely to avoid any problems for themselves in the future.
The rule was due to be extended from the public sector to include the private sector in April 2020, but the Covid-19 pandemic caused the HMRC to postpone this till April 2021. The House of Lords Economic Affairs Committee published its report on the 27 April 2020 and whilst it agreed with the postponement it clearly states that this is just delaying the problem and its chairman has urged the government to re-think the whole off-payroll rules system. He has criticised the government for not taking into account the impact on the wider labour market and has been quoted as saying the IR35 rules are ‘riddled with problems, unfairnesses, and unintended consequences’. The committee have also advised that the government commission an independent review to see how these rules affected the private sector amid concerns due to evidence of employers admitting to blanket status determinations resulting in contractors and freelancers essentially becoming zero-rights employees, with none of the rights of being an employee and none of the tax advantaged of being self-employed leading to calls that amid the current global crisis that the government will be irresponsibly to even consider putting this deeply flawed legislation into the Finance Bill.
The government is due to announce by October 2020 whether the implementation will indeed occur in the private sector in April 2021, although they are already facing opposition over the disruption caused to businesses due to the Covid-19 pandemic and advised that it would be wrong to impose new burdens on business at this time such as the off-payroll proposals.
The government has long been lobbied by contractor groups in respect of the unpopular proposals, and it is hoped that the comments from the House of Lords will carry more weight.
At present the freelance workforce are already being pushed into umbrella companies and PAYE situations as private companies are unwilling to hire under personal services companies due to uncertainty surrounding these rules. If you are a contractor or considering becoming one and wish to discuss how these rules might affect you and the alternative pay-roll solutions then please do not hesitate to contact us.