Damning Parliamentary Report shows Government must not force through flawed Off-Payroll Tax law

30 Apr 2020

The Government must now delay and rethink the flawed ‘off-payroll’ legislation – that is the clear conclusion of the House of Lords Finance Bill Sub-Committee. This adds to calls from MPs and the sector to stop the new legislation which has already proven to cause damage, contradicting HMRC’s inaccurate impact assessment.

The powerful report, Off-payroll working: treating people fairly strongly criticises the proposals by the government to extend the off-payroll working rules to the private sector and urges them to pause and instead review and reform the discredited IR35 legislation.

The Lords heard considerable evidence over the course of it’s inquiry and concluded in the reports summary that “…the IR35 rules — the Government’s framework to tackle tax avoidance by those in ‘disguised employment’ — have never worked satisfactorily, throughout the whole of their 20-year history. We therefore conclude that this framework is flawed.”

Lord Forsyth of Drumlean, Chair of the Committee, said they welcomed the Government’s decision of deferment in the wake of the Covid-19 pandemic, but expressed considerable concern: “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 report highlighted the following key points:

  • That the Off-payroll rules are built on a flawed system—IR35
  • That the Government: 
    • severely underestimated the costs to business of implementing the changes
    • did not take full account of concerns raised by stakeholders
    • did not analyse sufficiently the unintended behavioural consequences of the proposed reforms
  • It is likely that the off‑payroll changes will cause widespread disruption
  • Recognised the creation of a ‘halfway house’ of “zero-rights employees”

The Report recommended a review, leading to a decision by October 2020, rather than pushing the measure through now. 

The Government had already committed to a review of self-employment, including reviewing the proposed IR35 changes, so the only responsible and honest course of action is to hold off introducing the Off-Payroll Tax now and instead conduct this review (which was in the Conservative manifesto) later in the year. 

Concerns about the off-payroll roll-out were also raised at Second Reading of the Finance Bill in the House of Commons on 27th March 2020, with several senior Conservative MPs speaking up on the issue. 

Sir Graham Brady MP (Altrincham and Sale West, Conservative) said “I hope that Ministers will also take the opportunity to look at whether more could be done to achieve proper clarity of definition between contractors and employees, and at the ill-defined status of worker, which causes considerable confusion”.

John Redwood MP (Wokingham, Conservative) told Ministers to drop the roll-out and praised the contribution of contractors and freelancers “I urge the Minister to think again about changing the rules on IR35. There are about 5 million self-employed people in this country who have been doing a magnificent job for us. They provide flexibility, service and products that we need and they are very competitive. A number of them have been living under the shadow of those tax changes; some have lost contracts and work to overseas companies and competitors simply from that threat. I therefore urge the Minister to think again and recognise that we need to reward and encourage those people, not threaten them with a new tax. Above all they will offer a lot of the flexibility, hard work and energy that the recovery will need”.

Dr Liam Fox (North Somerset, Conservative) brought up the unfairness  that workers deemed ‘inside IR35’ are left without any sick pay “Secondly, I reiterate the points that have already made by some of my colleagues about IR35. Some of our most flexible and resilient workers in our economy are in that grouping, and what we must not do in trying to right a wrong is put them in a position where they are disadvantaged, without sick pay in line with other workers in the economy, for example”.  

Despite these concerns, Financial Secretary to the Treasury Jesse Norman made clear the Government still intends to bring in the Off-Payroll Tax, in this Finance Bill. But, they have already faced problems, with the delay and backed off introducing the resolution at Second Reading. It’s by no means a done deal.

The Stop The Off-Payroll Tax is now heavily campaigning to stop the inclusion in this Finance Bill, and pushing for the review that the Conservatives had promised.

Commenting, Dave Chaplin, Director of the Stop The Off-Payroll Tax campaign and CEO of ContractorCalculator said:

“I applaud the House of Lords Finance Bill Sub-Committee, they have clearly seen the Off-Payroll Tax for what it is – ill-thought through, ideologically led, unevidenced, cruel, misguided and ultimately unfit for purpose. Let’s hope that MPs listen to the serious concerns raised and postpone the legislation, then hold a proper review of IR35, as promised by the Government before the election. A holistic approach now needs to be taken to treating the self-employed fairly in the tax system.”

“The legislation is clearly contentious amongst MPs given that it was pulled out of the order of today’s reading of the Finance Bill. UK industry is currently on its knees due to the COVID-19 crisis, and will need the help of the UK’s flexible workforce to get back on its feet as we emerge from this crisis and that is going to take some time. Now is not the time to apply a straight-jacket and a policy that has been shown to be damaging”.  

“We urge all contractors and freelancers to sign up to the campaign and to contact their MP. The Government must not be allowed to push through such a clearly flawed piece of legislation and we hope more and more MPs and peers will speak up against it”.   


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