A House of Lords select committee is to scrutinise the extension of IR35 rules to the private sector, just two months before the new rules are set to become law.
It comes as an index of freelancer confidence fell to a six-year low despite the improving economic certainty surrounding Brexit.
The House of Lords Finance Bill Sub-Committee invites contributions to its inquiry before 25 February. It focuses on the government’s proposal to extend the off-payroll working rules – which were introduced for the public sector in 2017 – to large and medium-sized organisations in the private sector from April 2020.
It’s vital that the Lords Select 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” – Seb Maley, Qdos
The rule changes mean that businesses – not individuals – will be responsible for deciding whether contractors they hire are liable to pay income tax and national insurance contributions, and if so, for paying those sums to HM Revenue and Customs.
The inquiry comes a month after the Treasury announced a review – which runs until mid-February – to ensure the implementation of these changes in April runs as smooth as possible.
Major businesses, including many large banks, have said they will no longer engage contractors in fear of falling foul of the new legislation.
Former Conservative cabinet minister, Lord Forsyth of Drumlean, chair of the Lords Finance Bill Sub-Committee, said: “We are interested in how this change will work in practice, and how it relates to wider changes in working arrangements.
Private sector off-payroll working
“To inform our work we want to hear from as broad a range of people and organisations as possible. If you have a view on off-payroll working rules, please let us know what you think.”
This inquiry will cover the impact of the rules in the public sector, whether the impact of the extension to the private sector have been adequately assessed, the effect the new measures will have on a chain of contractors and sub-contractors, and what HMRC should do to help businesses understand the new rules.
It will also examine HMRC’s widely-criticised “Check Employment Status for Tax” (CEST) tool and how it might be improved, and whether the draft Finance Bill will achieve the government’s objectives.
Seb Maley, chief executive of contractor consultancy Qdos, 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 Select 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.
“Is HMRC’s IR35 tool capable? In its current state, it simply isn’t fit for purpose. What effect might further IR35 reform have on contractors? If mismanaged, there is a risk the private sector will repeat the mistakes made in the public sector.”
It seems that whilst freelancers are more confident about the wider economy, their confidence in their own industry has fallen off a cliff, thanks to the IR35 changes coming into play in April” – Xenios Thrasyvoulou, PeoplePerHour
He added that recruiters and end-clients must continue preparing for the reforms, which will be introduced on 6 April.
The inquiry comes as freelancer confidence has reached a six-year low, according to research by the Association of Independent Professionals and the Self-Employed (IPSE) and freelance platform PeoplePerHour.
Freelancers’ confidence in their own businesses has dropped sharply despite the fact that their confidence in the wider economy is now recovering.
Inna Yordanova, senior researcher at IPSE, said: “Freelancers’ confidence in their business performance has reached record lows and this seems to be because of fears about the changes to IR35 due in the private sector in April.
“The IR35 changes appear to be behind the confidence dive because confidence has fallen sharply in the two groups that will be affected most by them… In fact, if you focus on these groups, which include managers, directors, senior officials and professional occupations, their confidence has truly plummeted this quarter.”
Xenios Thrasyvoulou, founder and CEO of PeoplePerHour, said: “I am disappointed, but not surprised, to see another fall in freelancer confidence this quarter, to the lowest in six years. It seems that whilst freelancers are more confident about the wider economy, their confidence in their own industry has fallen off a cliff, thanks to the IR35 changes coming into play in April.
“There is still a chance for government to address these issues and listen to the concerns of this important industry, before more damage is done.”