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Contractors to return to outside IR35
Most contractors to reject client’s IR35 decision
With IR35 reform in the private sector having been delayed by one year, most contractors assessed as inside IR35 by their client will reject this decision and revert back to working outside the legislation, research put to more than 1000 independent workers has revealed.
After it was announced that private sector changes have been postponed until 6th April 2021 due to COVID-19, it has been reported that 56% of contractors who have been placed inside the rules by their client, are working via an umbrella company or as an employee, intend to return to outside-IR35 working. 27% of contractors are unsure of what they will do, while 17% plan to remain in their current engagements.
For genuine contractors whose clients have given them no option but to work inside IR35 (where they pay tax as employees), this shift is to be expected,
The majority of independent workers surveyed (52%) said they had been placed inside the legislation or were working on the payroll through an umbrella firm or as an employee of their one-time client. Most of these individuals are ready to reclassify themselves outside the rules and are urged to ensure their IR35 compliance:
“Before working outside IR35, contractors must make sure their contract belongs there, while IR35 insurance will protect them in the event of an HMRC investigation. It also goes without saying that a client has to agree to engage outside IR35 contractors once again too.”
Thousands of contractors have had no choice but to work inside IR35 and therefore don’t trust the accuracy of their client’s decision, which determines if they pay tax as a self-employed individual or as an employee. To make matters worse, these contractors – a huge portion of whom are genuinely self-employed – don’t receive any employment rights despite being classed as an employee for tax purposes. Those who feel they’ve been unfairly assessed or contractors who have had no choice but to work through an umbrella company or as an employee to keep their client want to revert back outside IR35 – and I don’t blame them.”
Whether a company will give contractors the opportunity to work outside the rules having already placed them inside the legislation is also an important consideration. However, this research – that revealed 40% of contractors working inside IR35 had been blanket-assessed by their client – did suggest a significant number of firms (32%) are now rethinking their strategy.
While this is positive news, businesses must avoid banning genuine contractors once again in the lead up to April 2021.
From a client or recruiter’s perspective, when reform is finally rolled out the legislation shouldn’t matter. With one more year until the changes arrive
businesses that banned outside IR35 working now have a chance to rethink their strategy. That said, this time must be used wisely and preparations need to start now.”
The House of Lords report into IR35 says – Unfair and riddled with problems !
The House of Lords has published a conclusive report into IR35, finding the legislation to be “riddled with problems, unfairnesses, and unintended consequences.” As a result, the Lords have recommended that the Government “completely rethinks” these complex tax rules.
After a lengthy investigation into IR35, the Lords Economic Affairs Finance Bill Sub-Committee welcomed the Government’s decision to postpone private sector changes but urged policymakers to use the next year to carry out “wholesale reform” to the legislation itself.
With the Government having “overlooked” the “potential impact of the rules on the wider labour market”, Lord Forsyth, who chaired the Committee, asked: “How prepared will businesses recovering from the crisis be to take on this extra burden (referring to IR35 reform) next year?” The Government needs to think this through very carefully.”
The arrival of the Lords’ report came on the day of the second reading of the Finance Bill, that didn’t contain IR35 reform. While speculation has been mounting that this could mean IR35 changes will be delayed again or scrapped altogether, the Treasury’s Jesse Norman made it clear that reform will go ahead: “The Government will introduce an amendment to the Bill in due course to legislate for a new commencement date of 6th April 2021.
The Government will use this additional time to commission further external research into the long-term effects of the reforms in the public sector, with the intention that that research will be available before the reforms come into effect in the private sector in April 2021.”
Revisit IR35 reform in 6 months
The “inherent flaws” of the IR35 rules and the uncertainty caused by COVID-19 led the Lords to call on the Government to announces in six months’ time whether it will “go ahead with reintroducing these proposals.”
The Lords have made the right call, urging the Government to reassess things further down the line when contractors, businesses and the UK economy can see a way through this crisis.”
End zero-rights employment
Throughout the report, which IPSE described as a “much-needed dose of sense in the IR35 fiasco”, the issue of ‘zero-rights employment’ was focused on. The Lords made a point that many contractors tend to agree with – that individuals operating inside IR35, where they pay employment taxes, must receive employment rights in return. Lord Forsyth put this into perspective, explaining that inside IR35 contractors qualify for “none of the rights of being an employee, or the tax advantages of being self-employed.” To address this problem, the Committee believes that the Government must deliver on its promise to implement the recommendations of the Taylor Review, “that calls for consistency in the taxation of labour across different forms of employment.”
IR35 Absent from Finance Bill
The 67-page House of Lords report ‘Off-payroll working: treating people fairly’, also raises further concerns over the reliability of CEST and argues that the introduction of changes will likely “cause widespread disruption.”