Planned rollout of IR35 legislation to the Private sector, which was due to take place on 6 April 2020, has met with renewed criticism, this time with the House of Lords requesting wholesale review of the measures.
Due to the Coronavirus outbreak, the introduction of IR35 legislation to cover the private sector, has been put back 12 months to April 2021, but the Lords have suggested the rollout be delayed indefinitely until the policy’s “inherent flaws and unfairness” have been addressed.
As a result of the planned rollout, which was only delayed 3 weeks before it was due to take effect, the Lords report described how businesses planning to manage the new legislation had made “blanket status determinations”, with some deciding “not to use freelance contractors at all”. On 4th March we wrote about some of our own clients that had already taken the decision to wind up their contracting obligations and seek full time employment in advance of the policy extension. The Lords report also cites similar examples of businesses cancelling contracts to avoid having to make the determination or risk getting caught with significant tax liabilities.
The report adds how some workers have been left with none of the rights of an employee or the tax benefits of being self-employed.
Despite meeting with criticism from the Lords, amongst many others, the treasury has sought to defend its plans. A treasury spokesman said, “It is right to ensure that two individuals sitting side-by-side and doing the same work for the same employer pay the same tax and national insurance contributions.”
With government borrowing rocketing amid the Coronavirus pandemic and many economists predicting a recession of historic level, it seems hard to imagine the Government back pedalling on a measure that was anticipated to generate an additional £3bn between 2020 and 2024 – every penny will count.
The small businesses and contractors that will be impacted by the new legislation were the mainstay of the UK economy over the lost decade following the financial crash in 2008. We regularly hear in the media how they remain the constant, the lifeblood of the economy. They help bigger businesses manage headcount, avoid redundancies and in many cases enjoy slow but sustained growth which means more taxes and more jobs being created.
Contracting and self-employment are often the short term remedy to recession and unemployment and so anything which jeopardises the source of these new businesses or becomes an impediment to entrepreneurial thinking will therefore have an impact at a time whereby they are likely to be crucial to our recovery.
You can read the full House of Lords Report here: