IR35: House of Lords committee calls for reform of off-payroll working rules

A House of Lords committee report that is reviewing the planned changes to the IR35 off-payroll working rules has called for a reform of the rules, stating that there are ‘inherent flaws’ in the legislation.

IR35 was intended to be introduced for the private sector in April 2020 but has been delayed until 2021 because of the COVID-19 pandemic.

The off-payroll working rules are already in place in the public sector, but the House of Lords economic affairs finance bill sub-committee has now stated that the extra time should be used to rethink the legislation.

The review states that the Government has not analysed the unintended consequences of the reforms, with many contractors facing the prospect of being laid off despite the deferral of the scheme until next year.

The committee was told by witnesses that they believe the rules have made them ‘zero-rights employees’, meaning that they have none of the rights of being an employee, while also having none of the tax advantages of being self-employed.

Lord Forsyth of Drumlean, Chair of the House of Lords economic affairs finance bill sub-committee, said: “The committee 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. 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.”

The committee has recommended that the Government consider not just IR35, but also the treatment of employees, workers and self-employment to ensure that treatment is more consistent.

It has also been recommended that the Government announce by October 2020 whether or not the intended introduction of the IR35 rules for the private sector will go ahead in April 2021 as currently planned or not.

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Posted in Employees, Latest News, Personal tax, SMEs, Tax.