IR35 Reforms: MPs vote against delaying new HMRC rules to the dismay of campaigners
Contractors and campaigners alike have been dealt with another IR35 blow. On this occasion, MPs have voted against delaying the controversial IR35 reforms for the self-employed in the private sector. Many have feared the legislation will leave them with a higher tax bill or affect their opportunities to find work as companies look to offload themselves of any potential risk associated with contractors. Those who operate via a limited company have wanted the IR35 reforms to be postponed until 2023-24, however, the amendment did not gain enough support from MPs as it ultimately failed to progress through the “Report Stage” of the Finance Bill.
“IR35 reform in the private sector has effectively now been signed off and will arrive in April 2021. Despite concerns raised by a number of MPs, who rightly exposed the flaws of this legislation and made it clear they do not believe IR35 reforms are necessary, it seems there’s no turning back now,”
“The reform is short-sighted and, if mismanaged, poses a risk not just to contractors but to hiring organisations and recruiters. It’s therefore up to private sector firms to prepare for the IR35 reforms, which can be managed with the right approach. However, work must start immediately – I can’t stress enough how important this is.”
-Seb Maley, CEO at IR35 adviser Qdos.
So, what exactly are the IR35 reforms?
IR35 reforms were previously due to start in April 2020 but have been delayed by the coronavirus pandemic.
The legislation is designed to clamp down on contractors who operate in a similar way to employees but work through limited companies for tax purposes. Under the changes, medium and large private businesses will become responsible for judging whether their contractors are inside or outside the scope of IR35, rather than the workers themselves.
Contractors are concerned that they will be found inside IR35 incorrectly, meaning they will have to pay the same level of tax as employees but without the employment benefits, such as holiday pay. The consequences continue as contractors also face having to pay income tax and National Insurance Contributions (NICs) as if they were employed. The changes have already impacted how some private companies are choosing to operate, with reports that some are already avoiding work with contractors altogether.
A handicap placed on businesses
The amendment to postpone the IR35 legislation was tabled by the Conservative MP for Haltemprice and Howden, David Davis.
“It is very unlikely that the economic crisis we are facing will be over by April 2021 and attempting to implement IR35 will cost jobs and do serious economic damage.”
Mr. Davis continued: “It is right not to impose unnecessary burdens on business at a time like this.”
But MPs ultimately voted against the amendment. Another amendment to delay was also defeated in May during an earlier stage of the Finance Bill.
“Disappointing”
Dave Chaplin, director of The Stop the Off-Payroll Tax Campaign said:
“It is very disappointing that after four years of campaigning we have not achieved the primary aim of stopping this legislation.”
Mr. Chaplin also said that the industry at least had a chance to properly prepare for the changes.
“Moving forward, the market now needs to prepare, and, with careful planning, firms have nothing to fear and can hire freelancers compliantly. We have already had a dress rehearsal, and many firms and contractors saw what would happen if they did not prepare properly. We now need to work together to avoid a cliff-edge scenario. Provided firms work with specialists in this field, they should have nothing to fear,” he added.