Plans to tackle IR35 ‘riddled with problems’ and should be completely overhauled, say Lords
The changes to the IR35 rules have been delayed for a year due to coronavirus (PA)
2 min read
The Government’s plans to overhaul the tax rules for the self-employed are “riddled with problems, unfairnesses, and unintended consequences”, according to the House of Lords.
They say the one-year deferment of the changes to IR35 due to coronavirus should be used to completely rethink this legislation.
A report by a Lords committee said the framework to tackle tax avoidance by those in what is known as “disguised employment” has not worked properly throughout its 20-year history.
But they say the Government has not sufficiently analysed the unintended consequences of the proposed reforms, which are meant to ensure two people sitting side by side, doing the same work for the same employer, are taxed in the same way.
Ministers want to stop employees working in a permanent position at a firm being “disguised” from HMRC by being paid through their own limited company as a freelancer, and therefore paying less income tax and National Insurance.
The current rules mean individuals assess their own tax status - but the changes mean the responsibility will now shift to businesses, a move campaigners say will have a damaging effect on legitimate contractors.
Peers on the Economic Affairs Committee say contractors are already being laid off, despite the fact the reforms which were due to come in on 6 April have been delayed for 12 months, while others say the rules have made them “zero-rights employees” with none of the rights of being an employee, or the tax advantages of being self-employed.
Writing for The House Live, the Committee's chair, Lord Forsyth of Drumlean, said the group of peers "welcomed the Government’s decision to defer these off-payroll working rules in the wake of the Covid-19 pandemic".
“However, our inquiry found these rules to be riddled with problems, unfairnesses, and unintended consequences," he added.
“The potential impact of the rules on the wider labour market, particularly the gig economy, has been overlooked by the Government.
"It must devote time to analysing all of this. A wholesale reform of IR35 is required.”
A spokesman for the Treasury said: “It is right to ensure that two individuals doing the same work for the same employer pay the same tax and national insurance contributions.”
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