IR35 reform debate by MPs condemned as ‘too little, too late’

The government, the taxman, the chancellor and a Treasury minister have all been effectively accused of not really ‘getting’ private sector IR35 reform by a medley of concerned MPs.

Misunderstanding of the 2020 rules by this quartet was suggested by the MPs to be so stark that, according to one MP, Budget 2019 should be used to address issues with the reform.

Alternatively, as Brexit will make flexible staff more economically important, and as “1,000 experts” are due to be sought for status reviews, the rollout would be better post-2020, the debate heard.

'Simply aren't enough'

“There simply aren’t enough experts to do this,” said Brookson Legal Services, referring to MPs’ estimate of how many reviewers PSCs will likely enlist over the next six months to prepare.  

The law firm added: “There is a significant amount of work still required within a short timeframe to turn these complex rule changes into something that can be truly understood”.

But this ‘true understanding’ seems to elude HMRC, the Westminster debate heard. “It appears that HMRC does not understand the IR35 rules,” began Ruth Cadbury MP.

“It recently lost a tax case against Lorraine Kelly. If HMRC has lost approximately 50% of IR35 tax cases that it has brought against contractors, how can it implement an online tool to get a correct IR35 result? HMRC gets that right only 50% of the time when it goes to court, which has to be worrying.”

An outraged chartered accountant has said much the same, pointing out that out of the last 12 IR35 cases to go to court, even the only outright win for HMRC is now under appeal.

'HMRC, a teacher failing their own exams'

Paul Sweeney MP made a similar point in the debate.“Given that HMRC loses the vast majority of IR35 cases in court, how can it adequately educate and prepare the entire private sector to accurately assess the status of the contingent workforce?

“Should a teacher who consistently fails their own exams be the one chosen to teach the lessons?”

The shadow minister for Scotland also questioned Treasury minister Mel Stride’s understanding.

“In February, I submitted a written question to the financial secretary to the Treasury. In his answer, he said: ‘The reform does not change the amount of tax payable by the firm engaging the worker.’ [But] I am afraid that that is factually incorrect.”

'Damaging and destructive'

Philip Hammond, the chancellor, came in for criticism from Mr Sweeney too, with the implication being that Mr Hammond is contradicting himself, assuming he does understand the reform.

“I refer [MPs] to what the current chancellor said in November 2001,” the Scottish Labour MP began, “[around] the time of its [IR35’s] introduction: ‘One reason why the government’s IR35 initiative has been so damaging and destructive is the fact that it has hit at the most flexible part of the economy.’

“It would be interesting to see if the minister [John Glen, appearing for HMT at the debate] can [now] explain how the reforms are no longer as damaging and destructive as his boss previously thought.”

And Mr Sweeney also took issue with the government’s policy, suggesting -- at best -- a lack of joined-up thinking.

“Those [contractors] given a Hobson’s choice [under the private sector off-payroll rules] will end up classed as employees for tax only, but will not have any of the associated employment rights. That seems entirely contrary to the government’s Good Work plan,” he said.

'Too little, too late'

Status advisory Qdos Contractor is refreshed to hear such a granular examination of the 2020 IR35 framework by MPs, who used the debate to highlight the fears of their constituents.

“It should be welcomed that a number of MPs are now paying close attention to IR35 reform,” the advisory said in a statement to ContractorUK.

“But” added Qdos CEO Seb Maley, “it could be argued that this is perhaps too little, too late.

“Unless the government performs a spectacular U-turn, private sector changes will be enforced next April…there are no signs that the taxman has any intention of changing tack”.

'Lessons have not been learned'

There are also no signs that other members of the quartet implicitly criticised at the debate want to divert from the course laid down in last month’s consultation.

“[Officials are not looking like] listening to anyone regarding IR35 reform - whether that’s an IR35 expert or even an MP,” regretted Mr Maley.

Anneliese Dodds MP, who attended the debate, said: “It is unfortunate that…the lessons have not been learned from the roll-out of IR35 to the public sector before it is rolled out to the private sector.”

She added: “The consultation does not focus on the problems with the public sector roll-out. I would have anticipated that any consultation to expand the approach would take those issues on board.”

'Unblock their ears'

Disappointingly for those who thought the debate could spark a change of tack (Drew Hendry MP said he hoped the submissions would make officials ‘unblock their ears’), previously issued, already discredited statements dominated the government’s response to the MPs.  

The Treasury’s Mr Glen said the IR35 reforms “do not affect the genuinely self-employed’ (as rubbished back in January 2019),  and that “evidence suggests that the rules [introduced in 2000] have frequently been misapplied” (the ‘evidence’ is based on research that has been criticised).

More outlandish, and at odds with a comparison between IR35 (2000) and the off-payroll rules (2017) -- which the 2020 rules will be based on, is Mr Glen’s claim that next year’s legislation “simply enforces” the original Intermediaries legislation.

One stark difference is the exemption in the 2020 framework for small businesses – which the minister was asked of, in terms of whether it is only temporary. He declined to give an answer.

'Livelihoods are at stake'

“This is a very complicated issue,” reflected Ged Killen MP, who secured the debate, referring to IR35 reform in general. “It is not necessarily one that sets pulses racing. However, for the people affected, their livelihoods are at stake.”

“IR35 is not in a state to be further expanded”, said the SNP’s Mr Hendry, who called the government to use this autumn's Budget 2019 to “address IR35 negative’s impact”.

He added: “That has been clear throughout…this debate and from what we have heard about those who have experienced the effects, such as contractors and the people trying to deal with IR35 in our public services. It cannot be right for the government to steam ahead without taking that into consideration.”

Editor's Note: A fuller write-up of the government's response is published separately on ContractorUK today, here.