Yesterday (10/05/2020) parliament debated an amendment to the Finance Bill that would see IR35 reform in the private sector (which was due in April 2020 and has now been deferred to 2021) delayed further until April 2023.
However the amendment was not even selected for a vote, leaving many MPs upset that they didn’t get the opportunity to even vote on it.
MP, David Davis, has been the driving force for further delaying IR35 reform in the private sector, after being disappointed by the House of Commons reaction to the Lords’ IR35 inquiry.
In response to Jesse Norman, the Financial Secretary, stating that a further delay would ‘perpetuate the unfairness’ of individuals performing the same work and paying vastly different tax, Mr Davis argued, “The effects of the pandemic are going to be felt for considerably longer than one year. [So] contractors are going to be hit with unnecessary cost, confusion, and uncertainty, just as many are getting back on their feet after coronavirus has wreaked havoc [in] the economy.”
Fairness aside, an expensive contractor is much more likely to have their contract cancelled at short notice than an employee who has rights. And this pandemic scenario has aptly demonstrated why a contractor’s pay should be different – they’re an essential and short term, flexible alternative to hiring an employee. They take on the risk and therefore have a higher rate as they’re more likely to be out of work for periods of time, as well as cut during times of financial crisis. If anything, this pandemic has shown exactly why the old system works.
Many other MPs were clearly frustrated at the dismissal of the proposed delay, stating that now (or April 2021) is not the time to make such a change, when companies and the economy are struggling. The effects of the coronavirus pandemic will be measured in years, not months.
A Review Was Promised
MPs are also, rightly so, frustrated that a thorough review into private sector IR35 reform has only resulted in Rishi Sunak stating that he’s had a chat with HMRC and asked them to play nice, in terms of penalties, for the first 12 months. When it comes to a serious review, Mr Norman stated that this review (or ‘research’) was to take place within the first 6-12 months of the changes to IR35.
Research and reports on the ‘success’ of IR35 in the public sector post script have demonstrated countless issues for businesses and PSCs.
The Lords Inquiry
The Inquiry revealed damning flaws in IR35 and suggested a complete re-think of how PSCs are taxed, one thing was clear; the government’s current IR35 reform plans are the wrong way to go.
Contractors have been treated unfairly for many years, and IR35 reform just means more of the same. Working highly skilled, in-demand, and critical work, but now (well, from April 2021 in the private sector) with no employee rights, short notice periods, no pension contributions and identical taxes to those who enjoy all of those benefits as employees of engaging companies.
One Ray Of Hope
Companies such as BAE who have decided to take a blanket approach to PSC’s IR35 status to avoid any nasty repercussions will not be permitted to do so! This was a major issue, and still is, in the public sector determinations.
On the one hand, this makes substantially more work for companies like BAE, who may go down the Barclay’s route and scrap contractors altogether rather than taking the time to assess each PSC and provide evidence for their decisions upon request. On the other hand, if contractors can continue a dialogue with their engaging companies there may be hope that their IR35 status is determined correctly.