Delay IR35 Reform: Final Push in Lords Inquiry

Lords Off-Payroll Probe: Final Push for Government to Delay IR35 Reform

Background of IR35 Reform

The House of Lords has initiated an inquiry into the UK government's controversial off-payroll working rules, set to extend IR35 into the private sector. This move comes as confidence in freelance business drops to its lowest recorded levels. The Finance Bill Sub-Committee will examine the government's proposal to extend IR35 into the private sector, which was initially planned for April 2020 but was delayed to April 2021 due to the coronavirus pandemic[1][2].

Impact on Contractors and Businesses

The IR35 reform is expected to affect approximately 170,000 people who work through their own personal service companies, particularly IT contractors who left the public sector in 2017 when the reforms were first introduced there. Contractors within the scope of IR35 must pay similar tax to full-time employees, despite not receiving holiday or sick pay, or any other benefits. This could reduce workers' income by 25 per cent, costing contractors thousands of pounds in additional income tax and National Insurance contributions[1][2].

Concerns and Criticisms

Contractors and industry groups have expressed significant concerns about the reforms. The Association of Independent Professionals and the Self-Employed (IPSE) has called on politicians to scrap the new rules, citing the potential for a new status of 'no-rights employment'. The public sector reforms, introduced in 2017, were described as an "utter shambles", leading to a mass exodus of government contractors and delays in IT projects. The National Audit Office noted that Whitehall needed to spend £245m on contracts to meet the shortfall in skills[1].

Inquiry and Feedback

The Lords inquiry aims to understand how the new rules will impact private-sector businesses and contractors, and whether the tests to determine workers' tax status are clear. Lord Forsyth of Drumlean, Chair of the Finance Bill Sub-Committee, emphasized the need for broad input from various stakeholders. Contractors have been vocal about their concerns, with many businesses, including Barclays, Royal Bank of Scotland, and GlaxoSmithKline, announcing they will no longer employ off-payroll workers[1][2].

Recent Developments

Despite initial plans to repeal the IR35 reforms in 2023, the new chancellor, Jeremy Hunt, reversed this decision in October 2022, ensuring the reforms remain in place[2]. HMRC's submission to the Lords inquiry claimed it was too early to assess the impact of the changes, despite contractors reporting significant difficulties and a third of contractors surveyed by Qdos indicating they were placed inside IR35[4].

Conclusion

The Lords inquiry into IR35 reform highlights the ongoing challenges and concerns surrounding the off-payroll working rules. With the reforms now in place, contractors and businesses continue to navigate the complexities and potential financial impacts of these changes. The government's decision to maintain the reforms underscores the need for continued scrutiny and dialogue to ensure fair treatment for contractors and clarity for businesses.