A House of Lords committee is to probe the government’s controversial off-payroll working rules ready to come into effect later this year.
The finance bill sub-committee announced yesterday (February 4) it has launched an inquiry into the Finance Bill 2019-20, with a specific focus on the government’s proposal to extend the off-payroll working rules — commonly known as IR35 — into the private sector from April 2020.
IR35, which was introduced in 2000, is an anti tax avoidance rule that applies to all contractors and freelancers who do not fall under HM Revenue & Customs’ definition of being self-employed.
From April 2020, every medium and large private sector business in the UK will become responsible for setting the tax status – or IR35 – of any contract worker they use, as is already the case in the public sector.
The committee’s inquiry will cover how the rules have affected the public sector over the past 20 years, what the impact on private organisations will be, whether the system to determine tax status for workers is currently clear, and whether there could be simpler ways in which the objective of the new rules might be achieved.
Chief executive of IR35 specialist Qdos, Seb Maley, said: "While we welcome this inquiry into IR35 reform, we can’t help but wonder why it wasn’t held months ago. Nonetheless, it's an opportunity for contractors, agencies, businesses and experts to have their voices heard.
"It's vital that the Lords committee looks at the facts around IR35 changes. Has public sector reform worked? No, not when you consider that thousands of contractors were unfairly forced inside IR35."
Mr Maley said regardless of the inquiry recruiters and end-clients should continue preparing for reform.
Businesses and contractors have fiercely opposed the changes to the rules, arguing they would increase a business’ contractor costs by up to 14 per cent and would limit the tax freedom currently enjoyed by the self-employed.
Tax experts have predicted IR35 could reduce a worker’s net income by up to 25 per cent, costing the typical limited company contractor thousands of pounds in additional income tax and NICs.
Last year the Association of Independent Professionals and the Self-Employed called on the government to “pause” the incoming legislation as research revealed the extent of business anxiety around the shake up.
But HM Treasury said the taxpayer could be missing out on up to £1.2bn a year by 2023 as a result of people getting the rules wrong, and incorrectly paying tax as if they were self-employed.
The controversy surrounding the changes prompted Chancellor of the Exchequer Sajid Javid to pledge a review of IR35 as part of the Conservative party’s manifesto in the lead up to the general election.
At the time Mr Javid said he wanted to make sure the proposed changes were “right to take forward” but when the Treasury announced the review last month, the industry branded the set up “hasty” and “meaningless”.