MPs give HMRC six weeks to consider covid support for the IR35-hit 'excluded'

MPs have put the taxman on a six-week deadline to spell out what help IR35-hit individuals who missed out on covid-19 support due to the off-payroll rules could be given.

In a report ‘HMRC performance 2019-20,’ the Public Accounts Committee say before March they also want the department’s “explanation” on why it cannot help “excluded” freelancers.

These three million workers appear to be victims of “quirks in the tax system,” or quirks in the design of the government’s covid-19 income support schemes, the committee says.

'Government seems reluctant to help'

But it is HMRC’s pre-pandemic rules on IR35 which make the MPs “concerned” that some people have moved onto payrolls in obeyance, only to preclude themselves from support.

“It is clear that certain sections of the flexible workforce have been overlooked by the government when it comes to financial support throughout the pandemic,” reflects Matt Fryer of Brookson.

Shown the MPs’ recommendations, he also told ContractorUK yesterday:  “Government has supported certain types of workers and sectors very well but seems reluctant to provide support to those working via a PSC.”

'IR35 reform's early damage'

Seb Maley of Qdos sees things similarly. “Many experts, myself included, have made clear our concerns about the gaping holes in the covid-19 support.

“This report [by the PAC] brings to light even more flaws in the available help,” he said, “not to mention some of the damage caused by IR35 reform.”

The IR35 contract reviewer added that some PSCs were “faced with no real choice but to go PAYE” due to changes end-users made in 2020, to prep for the new rules from April 2021.

'Ill-informed'

In their report, the MPs suggest that some contractors may have been excluded from the Coronavirus Job Retention Scheme, when they joined a payroll out of IR35 fears.

The MPs say a similar exclusion may have hit with the Self-Employed Income Support Scheme, if “freelancers” fled to a payroll over IR35 and lost SEISS coverage as a result.

“Contractors would [not] have been eligible for the SEISS as that scheme is available to the unincorporated - sole traders, who are not impacted by the IR35 changes,” clarified Mr Fryer.

“The SEISS is not available to contractors working via a PSC, so on this point it appears the committee has been ill-informed.” 

'Key issue'

Where the MPs are on firmer ground, he hinted, is over the still “key issue” for limited company workers of “HMRC’s reluctance to provide them with…reasonable support.”

“There is the claim [via the CJRS] for 80% of a director’s fee [but this] is typically set at a relatively low level when compared to total income,” Mr Fryer says.

“Furthermore, there still remains the issue of access to the CJRS for umbrella companies which based on the current rules have to fund certain employer costs to gain access to the grant to allow them to furlough and make some form of payment to their employees who are unable to secure a contract due to covid.”

'Deadline for HMRC falls nicely, a day before Budget 2021'

The committee did not address this latter point, but in the round, advisers say that both their deadline and their “recommendations” to HMRC about business soloists are very worthwhile.

“It’s excellent to see the PAC challenging the lack of support for contractors and the self-employed,” says Bauer & Cottrell (B&C). “They’ve given the proposed DISS as an example.”

“Most interesting is that they have set HMRC a six-week deadline to respond to its recommendations, which falls nicely one day before Budget 2021 on March 3rd. 

“And crucially, the PAC cannot be ignored -- unlike the House of Lords.”

'Fingers crossed'

However, the Revenue could still respond with the predictable statement -- “any further support is a matter for ministers,” cautioned B&C’s Kate Cottrell.

The former tax inspector also said: “Fingers crossed that something is done about this but the government so far has refused to provide any further support. 

“I am concerned that this further pressure [by the PAC] to do at least something could be tied to a Budget surprise along the lines of, ‘we will do this --  but only in return for the following.’”

'Very frightening indeed'

Another ex-Revenue officer also sounds concerned for the flexible work economy.

Carolyn Walsh, now of Andraste Accounting said of the MPs’ report,: “Of the 2.9million estimated excluded people, who knows how many of them are out of work and in need of income support?

“The fact that we don’t know and neither does the government is very frightening indeed, not just because some people are on the edge of bankruptcy because of it, but because it exposes how bad HMRC systems are when it comes to assessing the income of UK taxpayers, particularly in the economically vital freelance, contractor, agency and umbrella work sectors.”

In the report, the MPs tell HMRC to “consider the support it can provide for those taxpayers that have, due to the IR35 rules, moved onto payrolls and missed out on support from the covid schemes, for example, by reviewing whether it can use an average of wages in the past three years to determine grants.”