Government urged to reform IR35 legislation

The House of Lords Economic Affairs Finance Bill sub-committee recently conducted an IR35 inquiry and deduced that the legislation was ‘flawed and ‘never worked satisfactorily’.

Critics have now urged the Government to rethink IR35 and consider a ‘fairer alternative’.

What is IR35?

IR35 is off-payroll working legislation and is set to ensure that contractors who are relied on like an employee pay broadly the same NI contribution and tax.

The legislation was set to come into action April 2020 but due to the COVID-19 pandemic, it has been postponed until April 2021.

What are the proposed issues with IR35?

Lord Forsyth, the chair of the committee stated, “the rules were riddled with problems, unfairness and unintended consequences.”

The sub-committee’s findings suggest that the cost to businesses has been greatly underestimated and that the overall issue has been considered too narrowly.

They believe that IR35 will have a huge impact on the gig economy and that it will discourage businesses from using contractors, potentially resulting in early terminations.

Also, the blanket approach used for determining contractors is far too broad and has resulted in multiple large organisations such as Barclays and HSBC stating they will no longer hire contractors via PSCs due to IR35.

How has the Government responded?

Jesse Norman, financial secretary to The Treasury stated in a virtual debate that, “in the light of COVID-19, the Government will delay the introduction of reforms to the off-payroll working rules in order to give businesses more time to adapt.”

“However, the Government remains fully committed to introducing these reforms to ensure that people working like employees but through their own limited companies pay broadly the same tax as individuals who are employed directly.”

How can IRIS help?

The general consensus right now is that IR35 will continue as planned so if you want to prepare or you’re unsure whether the changes apply to your business, check out our informative blog.

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