Lord Committee: Government Must Address IR35’s Flaws

The House of Lords Economic Affairs Finance Bill Sub-Committee has that IR35 – the Government’s framework to tackle tax avoidance by those in ‘disguised employment’ – has not worked properly throughout its 20-year history.

As a result of the Covid-19 pandemic the Government decided to defer by a year its plans to extend the off-payroll rules to the private sector. The Committee has said it should now use this extra time to completely rethink this legislation.

These are among the conclusions of the Sub-Committee’s report, Off-payroll working: treating people fairly, published today.

The report asserts that the Government has not sufficiently analysed the unintended behavioural consequences of the proposed reforms. Contractors are already being laid off, despite the reforms’ delay. Many witnesses told the Committee that 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.

The Committee is therefore calling on the Government to keep its promise on implementing the recommendations of the Taylor Review: that the taxation of labour should be made more consistent across different forms of employment, and that there should be a fair balance between tax, rights and risk.

During the passage of the Finance Bill the Government intends to legislate to carry out external research on the impact of the reforms six months after they come into effect. The Committee consider this is too soon to give a full and accurate picture and calls on the Government to carry out this research 18 months after the rules have been in operation.

CECA has been working to ensure members are aware of the changes the Government is making to IR35 and working to reduce the administrative burden and extra costs they may entail.