Government defeats Finance Bill amendment to delay IR35 reform any further

An amendment to the Finance Bill seeking to delay private sector IR35 reform not being moved in the House of Commons yesterday did not stop the government from tearing into it.

The financial secretary to the Treasury said it was “hard to see any genuine rationale” for delaying the reform beyond the deferral to April 2021, announced already due to covid-19.

“Moreover,” added Jesse Norman, delaying the reform for a “further two years” would have “very significant drawbacks,” including “a significant fiscal cost” to the UK.

'No need for further delay'

It would also ‘perpetuate the unfairness’ of two people working side-by-side paying different tax, and “prolong the disparity” with the IR35 rules in the public sector, claimed the minister.

So there is “no need for further delay,” repeated Mr Norman, who then heard seven MPs explain the need for delay, only for him to refuse to pick up their delay points in his closing of the session.

David Davis MP, who tabled the amendment, put the case for deferral to 2023-24, the best. “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.”

'A year's delay isn't long enough'

The veteran Tory MP added that even if he could not vote on his resolution (due to it not being selected), he would be “back in nine months’ time,” to press the minister again.

“A year is not long enough”, agreed Labour MP Meg Hillier, referring to the delay to the private sector off payroll framework, announced by the government on March 17th.

“The government is very much in danger of throwing the baby out with the bath water. This system has grown up and helped to generate a whole business sector that relies on [PSCs].”

'Do it wholesale, not piecemeal'

Ed Davey MP, clearly the most impassioned of the seven MPs -- and visibly irritated by Mr Norman reiterated: “[The IR35 reform proposal] is the wrong measure, at the wrong time.

“The government should withdraw it [and] should review. And do it in a wholesale way, not this piecemeal way.”

The Lib Dems’ co-leader also said the minister did not understand “real life,” ‘should know better,’ and was ‘trotting out ideas’ about tax avoidance, rather than engaging with concerns.

'Make good after the stable door closed'

Sir Ed then picked up on the minister glossing over the fact that a pledged study into the 2021 reforms (as peers recommend), would only be conducted once the reforms have become law.

 “[The government is] trying to make good after the stable door has already closed,” said the Lib Dem MP, who called a probe into rules already in force as a “breach of good faith.”

But on this concern, like the many others put to him yesterday behind delaying the IR35 reforms, Mr Norman was not only unyielding to his fellow MPs. He was also unapologetic.

“We are not talking about a further review.,” he scolded to one MP, who clearly meant ‘research’ but trying to speak quickly, instead said ‘review.’

The reprimanding minister continued: “We’re talking about two pieces of research. One…to come before April 2021 which will look at the long term effects on the public sector”.

“[And] there is a second process of research which will come after this has been introduced and will be…an early-take on the effects of the private sector within the first 6-12 months.”

'Norman was entirely unconvinced'

Watching the financial secretary yesterday was Rebecca Seeley Harris, an IR35 expert who previously was seconded by the Treasury-commissioned OTS to advise on the legislation.

Asked for her assessment, she said: “Jesse Norman was entirely unconvinced by the move to delay the implementation of IR35 reform to 2023. 

“There will be no more reviews. There will only be research into the long term effects of the legislation on the public sector, but this still doesn’t answer the question on the lack of employment rights [for contractors deemed to be employees for tax purposes.”

She added: “I’m not surprised though, because all respective governments have continued to support the IR35 legislation so, the impassioned pleas are falling on deaf ears.”

'Tin-eared'

Often behind those pleas is Stop The Off-Payroll Tax. In a statement it sent yesterday evening to ContractorUK, the campaign said: “[Today we saw a] tin-eared approach.”   

“[It’s] by a government that is failing to listen to the people; failing to heed the damning findings expressed by the Lords…and failing to listen to the legitimate concerns of the senior members of its own party.  

“To bulldoze ahead with this damaging legislation at a time of national crisis beggars belief. The government should be supporting businesses right now, not hampering them and, in turn, inflicting harm on the entire UK economy.”

'Unfairly treated for years'

Seb Maley, CEO of Qdos believes that while a deferral might help, the key for the contractor sector is to have the off-payroll rules entirely rethought, as the Lords’ inquiry urged.

“Delaying the reform or, better still, scrapping the changes altogether would have been the right thing to do,” the status boss said last night.

“After all, less than one month ago, the House of Lords exposed IR35’s many flaws, putting forward a compelling argument for a total rethink of the legislation.

“However, that the government intends to roll out these unnecessary changes next year should not come as a surprise to contractors, who have been unfairly treated for years.

“What matters now is that private sector firms avoid risk-averse IR35 decisions, reverse contractor bans and prioritise fair, well-informed assessments.”

'An end to blanket approaches'

As to those IR35 assessments, Brookson Group’s head of legal Matt Fryer (who today writes exclusively for ContractorUK), says there was at least one upside to Mr Norman’s comments.

“[We today received from the minister] clarification that status determinations must be made based on an individual basis.

“[This] will hopefully put an end to the blanket approaches that we have already seen in the private sector and give contractors confidence to challenge, through the client-led status disagreement process, any inadequate determinations.”

Yet the government’s fresh refusal to delay IR35 reform further than 2021 means for “both contractors and their hirers”, it’s a case of “continue [those] dialogues that have [hopefully] already opened prior to the coronavirus crisis,” Mr Fryer said.

'Treasury warned MPs in advance'

Speaking before yesterday’s amendment to the bill, which now moves to ‘committee stage’ (where new clauses still have an opportunity be added), one contractor said he feared it wouldn’t amount to much.

“[This reads as] a good amendment,” the contractor reflected online.

“However given the…lack of support [it] is getting, I highly doubt that this will pass. The Treasury will also have MPs well warned in advance.”

'Proper view'

But the seven MPs who spoke yesterday (including the Labour MPs Dan Carden, Rachel Hopkins, Rushanara Ali, and the SNP’s Alison Thewliss) were certainly not on HMT’s side. Nor is the Conservatives’ Peter Bone.

“Not only will I be voting for David Davis’s amendment to the bill…[but] I have [also] added my name to it,” the Wellingborough Tory told a constituent, ahead of the motion.

“This amendment will stop the government from bringing in changes to IR35 before April 2023. This will enable a proper view of whether to bring in such regulations or not.”

The amendment was also a “good first step to walk back from this unwise change altogether,” according to Harry Fone, a grassroots campaign manager at the TaxPayers’ Alliance.

“[Coronavirus] lockdown has seen work patterns change and flexibility become more vital than ever before,” he blogged. “IR35 shouldn’t have a place in the post-pandemic world.”

'Needs to pay for covid'

At ReLegal Consulting, where status expert Ms Seeley Harris runs IR35 contract reviews, there is partial agreement. But there’s also significant bewilderment -- at the government’s forging ahead.

“The government will of course need all the tax it can collect to pay for Covid-19,” she says, suggesting money to be motivating the government’s decision to not delay the IR35 reform.

“But doesn’t the country rely on the flexible workforce to fill the gaps at times like these? It seems not, or at least, it might not now be able to do so.”

'We could not win'

Down but not out, Mr Davis tweeted last night: “We were unable to vote on my IR35 amendment this afternoon as the House [of Commons’] authorities did not select it.

“However, Labour were supporting the government anyway, so we could not win -- this time. Watch this space.”

Stephen Mhiribidi, legal head of the Independent Health Professionals Association, says: “It is rather unfortunate that the House of Commons’ authorities chose not to select it for vote as this did not even give MPs a chance to vote on it.

“It is also a tragedy that Labour could not see past the government rhetoric and rather blinkered view of supposed ‘tax-dodging contractors,’ and claims of an increased tax take at the expense of contractors’ rights and welfare.”

'Don't look a gift horse in the mouth'

Mr Mhiribidi, who is also the legal head of The Self-Employed Alliance added: “Jesse Norman has turned a blind eye to all this [-- the flouting of the rule of law, such as blanket IR35 status assessments].

“Contractors are effectively being turned into zero-hour contract workers without any employment rights whatsoever -- in complete disregard of the Taylor review, something you would expect Labour to stand up against.”

Calling out the minister directly, the legal expert said: “Mr Norman, do not look a gift horse in the mouth. It's not too late to change path and bring in a new and fairer regime that will work for both contractors and UK plc.”