Lords’ off-payroll probe ‘the final push government needs to delay private sector IR35 reform’

The mere formation of a Lords inquiry to probe IR35 reform so close to its April 6th start date may be the final, compelling piece of evidence that the government needs to delay it.

So almost regardless of what the peers recommend, a Treasury review plus an Economic Affairs Sub-Committee now looking into the changes, smacks of solid grounds to defer them.

“With the existing HMT review and now this HoL inquiry, it should see the whole reform delayed, irrespective of how ready [officials] are to roll it out,” says Bauer & Cottrell.

The status firm added: “We’ve had three months of silence due to the election and parliament was suspended. Both will now be taken into account [by the Lords, and the government].”  

'These Lords really know their stuff'

According to a tax industry source, these are not just any Lords. The source told ContractorUK:

“They really know their stuff – the Economic Affairs lot, unlike previous committees in the past [who have scrutinised IR35]. Just take a look at their questions. They are pretty spot-on.”

Indeed, nine searching questions on IR35 reform are posed, covering status, effects and the public sector. Answers from ‘as broad a range of people as possible’ are sought by Feb 25th.

“This isn’t a consultation but rather an invitation to provide written evidence,” says Andy Vessey, head of tax at Larsen Howie.

“While it is welcome, [this Lords’ inquiry] is very hurried due to the general election delaying the implementation of the original proposed legislation.”

'Precedent for legislation being delayed exists'

On the specific prospect of a delay, Vessey, a former tax inspector, isn’t convinced. He says:

“There is precedent for the government postponing legislation in the past, Making Tax Digital for example. But I’d be surprised if this were to happen with the off-payroll reforms.

“That is, unless the Lords can present a very compelling case that the IR35 reforms are likely to have a detrimental effect on contingent labour supplies and, in turn, the UK economy.”

'HMT/HMRC can't rule out a delay'

Yet a delay is being mooted by HM Treasury and HMRC at the IR35 Reform Review roundtables, which began before the peers’ vow to “investigate” IR35 reform, under the chairmanship of Lord Forsyth.

Angela Ferguson, head of employment taxes at Saffery Champness, who attended one of the roundtables says: “They couldn’t rule out [delaying the April 6th commencement date].

“[The review team’s officials said such a delay was] possible, if the review concluded that the majority [of end-users] are not ready for the reform”.

'Deferral is now the preference'

Ferguson regards a ‘soft landing’ for the reform as “more likely” than a 12-month delay, as she left the roundtable feeling like HMT/HMRC officials “very much [see it as] an option.”

But she was speaking before the Lords’ announcement and, yesterday, the ATT said that they too believe that delaying the framework would be better than just enforcing it lightly.

In fact, the tax body says the soft landing is “essential,” the deferral “preferential.” The latter course has also been backed by 14 agency bosses. And IPSE wants a delay until 2021 too.

“[It’s] a shame that this has only come about [now]”,  Andy Chamberlain, a director at the Association of Independent Professionals and the Self-Employed said of the Lords’ inquiry.

'Even more severe damage from April'

In a statement to ContractorUK, Mr Chamberlain added: “Many large companies have [already] hastily scrapped their contractor workforce in preparation for the changes.

“Nevertheless, IPSE will be submitting a full response to the Lords’ committee investigation, highlighting the harm the changes have already done across the self-employed sector and the even more severe damage that can be expected after April.”

Individuals should go forward to the peers as well, urged the co-founder of Bauer & Cottrell.

“Everyone affected should contribute to this inquiry and let the Lords have the real stories of massive proposed pay cuts, businesses of all sizes preparing to go bust, how we have all sorts of non-compliant ‘solutions’ springing up, and how many companies are simply outsourcing their services abroad.” 

'Inundated, resounding, astounded'

Once a tax inspector but now an IR35 expert Kate Cottrell also said: “If everyone affected does go forward, I suspect that the committee will be inundated with evidence of the serious damage that this proposed reform to the legislation is causing the private sector.

“Fortunately, the committee clearly wants to get to the bottom of the real impact in the public sector and let’s hope they will get to the truth – the public sector rollout has not been the resounding success claimed by HMRC/HMT. I think any person would be astounded to learn, for example ,that HMRC has fined the NHS [£4.3million] for not complying with the public sector IR35 rules. This is public money – our money.”