We cannot delay IR35 reforms any further, government says

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There should be no further delay in addressing the long-standing ‘unfairness’ of contractors paying less tax than employees in situations where their work should be classified as an employment relationship, the government has said.

In their response to the House of Lords report into off-payroll working in the private sector, which found the IR35 rules were “riddled with problems, unfairnesses and unintended consequences”, HM Revenue & Customs and the Treasury said bogus self-employment is an issue that the government cannot delay addressing any further, as it resulted in the loss of revenue for public services.

The reforms to off-payroll working rules in the private sector were due to take effect in April 2020, but have been delayed until 6 April 2021 to reflect the uncertainty caused by the coronavirus pandemic.

However, in April, the House of Lords economic affairs finance bill sub-committee suggested that the government should have waited until October to announce that the reforms would be brought in in April 2021, when the impact of Covid-19 on business may be clearer.

In response, HMRC and the Treasury said: “At the time of the delay, many businesses would have been prepared for this change to take place.

“It is vital, in the current conditions, that businesses and stakeholders have clarity over the timing of the implementation of the reform, and the final legislation, so they can prepare in a timely fashion. Waiting until October to confirm whether it will be implemented would create uncertainty.”

It has since been confirmed that the changes will take effect next year, after MPs voted against an amendment to delay them for at least 2023-24.

“Indeed, any additional delay would have significant drawbacks; it would not address the fundamental unfairness of taxing two people differently for the same work, and it would further prolong the disparity between the private and voluntary sectors and the public sector, where the rules have been in place since 2017,” the government’s response says.

They can make as many assurances as they want – the legislation is set to have a hugely damaging effect on contractors, the firms that hire them and the economy as a whole” – Dave Chaplin, CEO of ContractorCalculator

“There is a risk that this continuing disparity could begin to cause retention difficulties in the public sector, as contractors may choose to accept only private sector contracts, as well as being unfair to contractors working in the public sector.”

It says it has created a dedicated team to educate and support businesses and individuals affected by the IR35 changes and has completed almost 950 calls with medium and large organisations, held 10 webinars and sent 59,500 letters explaining the changes to the rules.

“This team is currently conducting a comprehensive evaluation of the education and support package offered during 2019/20, including collating feedback directly from organisations. The extra time afforded by the delay will be used to complete this evaluation. This will be used to inform the design of an enhanced programme of targeted support ahead of April 2021,” the government says.

It disagreed with the Lords’ committee’s view that the Check Employment Status for Tax tool was “not fit for purpose” and said it had made significant enhancements to the tool since it was introduced in 2017.

It said it intended to make the independent research it commissioned into the effects of the 2017 reforms of off-payroll working in the public sector available before April 2021 and would give careful consideration to the results.

“As with all areas of tax policy, if the research suggests that there are any implementation difficulties or any areas where further support is necessary, the government will consider further action to address these concerns. This sits alongside the ongoing work HMRC are doing to evaluate and enhance its education and support offer ahead of implementation in April 2021,”  the report said.

Dave Chaplin, CEO of ContractorCalculator, said the government’s response lacked substance and said its promises to help businesses to prepare were too “light”.

“It would appear that the threat of losing the vote on the tabled amendment resulted in the Treasury and HMRC having to make considerable assurances that the implementation would not have an adverse effect on the UK’s valuable private sector workforce,” he said. “They can make as many assurances as they want – the legislation is set to have a hugely damaging effect on contractors, the firms that hire them and the economy as a whole.

“As for its comments on CEST, it is staggering that the government continues to spout out the same debunked messages that the tool has been robustly and rigorously tested. Everyone knows, from FOI requests, that they do not hold any detailed evidence to prove their claims. It’s interesting to note that mutuality of obligation was not even addressed – it’s a key element of case law and it was omitted from CEST.”

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34 Responses to We cannot delay IR35 reforms any further, government says

  1. Avatar
    Ben Langford 16 Jul 2020 at 9:07 pm #

    I will never vote Tory again. All this will do is give large companies the option to keep workers paying the same tax and national insurance as full time employees. WITHOUT holiday and sick pay. Also pensions and other company benefits.
    With the pressure from what we have all be through families will now have to sell up homes.
    Many will look to move and work abroad. Mark my words !!

    • Avatar
      Mark 17 Jul 2020 at 10:45 pm #

      Looking overseas anyway But
      The point being in ir35 your nearer60% tax and out as an employee your probably not going to go to 50% and get. Holiday pay, sick pay less stress
      No point in doing it for this country
      So sod them and bugger the country

  2. Avatar
    Angelo Trozzo 17 Jul 2020 at 12:01 pm #

    Obviously they have no clues and their level of preparation is mediocre. Contractors generate an incredible amount of money for the community. We support massively recruiting agencies, insurance companies, pension companies, accountant ones, we spend in accommodation, because we are a mobile workforce, traveling where ever we need to. All this will impact all these kind of business, will generate more social insecurity, at the of the day, we have no holiday or sick pay no welfare coverage, we have to account months of no work, one week notice, how can you compare this with a permanent employ? We need to study constantly because we are solution man workforce, employed for short term to solve the difficult task with a general knowledge that is above the average, how can you quantify and state i the same work done by a permanent. Why a company does need to employ permanent staff to accomplish one single porject ? Or do you want us to have all the risk of being a contractor with a permanent salary? If that si teh case we deserve a decent unemployment coverage like in Switzerland or any Eu country where 80% of your salary is covered by the gov for at least 1 year.

    • Avatar
      Stevedewing 17 Jul 2020 at 12:37 pm #

      Agree totally , no point in being self employed if this goes through. Will kill the contracting world leading to more unemployed ,so more claiming benefits. Where is the logic

      • Avatar
        Josephine 17 Jul 2020 at 9:57 pm #

        With the UK economy going wobbly post-Covid-19, this is sure a ‘great idea’ on the part of decision makers to sacrifice the workforce that had been there for them to help build the economy. Who is even making all these random one-way myopic decisions? How do you answer the questions of how contractors pensions, holiday and sick pays are going to be paid when you thin them out? Have you ever looked at it from the angle of the contractors are taking their pensions in advance compared to employees that would continue to be paid beyond their working years? What about the fact that contractors are willing to travel hours to get the work done and expend so much on fuel and wear and tear to their cars and body; something that would never happen with full time employment.

        I see this ‘boomeranging’ in the near future against the growth of UK economy when you start experiencing ‘brain drain’ like Africa witnessed years ago when their doctors and professionals began migrating to the western world seeking better life. Then you’ll pay more begging contractors to take your specialist roles that others aren’t equipped to take on. A country that doesn’t appreciate its skilled labours would lose them to others who appreciate and need them. This myopic mindset explains why all other workforce’s were taken care of during the tight Covid-19 pandemic period except the contractors and small company directors.
        I am a highly skilled Cyber security contractor and I will look outside to other Europe countries who would appreciate my skills and pay me my worth when this strange idea rolls out. Good luck to UK!

    • Avatar
      Stuart 17 Jul 2020 at 1:38 pm #

      I work next to someone for 5 years that’s only paying 12 percent tax when I pay 45 percent they didn’t want holidays put costs of tools and transport to and from work though the books you can see the problems

      • Avatar
        Cristi Neagu 17 Jul 2020 at 2:51 pm #

        So how did you enjoy your payed leave? How about paternity leave? I bet that was nice. Is your pension plan coming along nicely? It’s job security good? Cause a contractor gets none of that. And that is the real problem.

      • Avatar
        David 17 Jul 2020 at 4:45 pm #

        Yes, the problem is with your grammar! Jeez!

    • Avatar
      Callum 17 Jul 2020 at 2:41 pm #

      Not to mention we pay just as much tax and sometimes more in Vat and corporation tax on the LTD earnings at minimum

    • Avatar
      Daniel Banham 9 Aug 2020 at 7:55 am #

      The way you describe yourself you’d be inside the rules and nothing would change . The real issue last time around was how the employers ran scared and said everyone was outside just incase so they couldn’t have any challenge on their decision from the HMRC

    • Avatar
      Brian Crewe 25 Aug 2020 at 8:22 pm #

      bang on

  3. Avatar
    Steve Dewing 17 Jul 2020 at 12:34 pm #

    As an aerospace contractor I travel far and wide for work ,which often means paying for accommodation, meals etc and more than a regular employee on fuel. Plus other outgoings which I will not be able to claim for if they push this through. It makes the whole self employed contractor business worthless, and with the aerospace industry (as other industries) on its knees and sometime for any type of recovery ,IR35 will cause a lot of ltd company contractors to go bust or fold, delaying any industry and economic recovery . In my opinion it has not been thought through, scaring employers and contractors alike and can only see it having a totally adverse effect on any chance of recovery . Huge mistake

  4. Avatar
    Cristi Neagu 17 Jul 2020 at 2:50 pm #

    You want unfairness? How about paying all the taxes an employee does without any of the benefits? Your taxes are paying for a pension, for the health system, while your employer is guaranteeing you payed holiday, payed maternity/paternity leave, maybe health insurance, maybe a boost to your pension plan. My employer guarantees none of that, but somehow I’m considered an employee and have to pay just as much money. You tell me how that is fair.

  5. Avatar
    Simon 17 Jul 2020 at 4:46 pm #

    What a bunch of –insert your swear word here — IR35 pretty much hit self employed contractors hardest, killed off most of the work just as covid hit, the government then left us hung out to dry with no support as they we are also self employed directors, said we were unable to furlough, only eligible for loans, unable to claim benefits. Then told they cant delay after shutting down the market for months. Honestly feels like we are just targets bacause rshi thinks we didnt pay enough tax, although we paid all our tax at rates they set I really despair, we were the startups that would have been hiring. Just a joke.

  6. Avatar
    nadir 17 Jul 2020 at 5:03 pm #

    I wish people would stop describing as equalling the tax. Once inside ir35 the contractor pays an additional 14% in employers tax as this is passed on, plus all the paye. So for tax purposes we are both employer and employee. No travel or accommodation expenses, training, sick leave etc etc etc. And no job for life, could be a short 3 month stint. So how is it fair. Covid is a perfect example of why we need to work as we do. No work for months, we then live of the money saved up in the company.

  7. Avatar
    Ryan McLaughlin 17 Jul 2020 at 6:21 pm #

    The point of contracting is a stepping stone to start a full on business. If govt remove the stepping stone there will be very few start up businesses that go on to form from contractor activity.

  8. Avatar
    Scott Cornwell 17 Jul 2020 at 7:51 pm #

    I work for one client 4 days per week, across two different contracts, and another for the remaining 2 day oer week.
    HMRC’s status test came back as outside IR35 yet I still had to pay for an external assessment to prove my status.
    No sick pay, holidays, pension contributions, travel or hotel expenses or company car yet we are expected to pay the same tax on our gross earnings.

  9. Avatar
    Anonymous 17 Jul 2020 at 9:32 pm #

    Government wants to tax the poor guys so they can bail out the filthy rich that don’t pay any tax or already has huge tax subsidies.

    I still remember few years back when it was revealed how much the likes of Google, Starbucks, Facebook etc. paid. I then paid around 20,000 in corporation tax as a contractor while Starbucks paid nothing.

  10. Avatar
    Mark 17 Jul 2020 at 10:55 pm #

    Oh let it happen who cares Take one look at the leadership of the country and the numpties running it. Let it hit the fan
    And let the. Face the consequences
    Not worth bothering with anymore

  11. Avatar
    Wayne 18 Jul 2020 at 12:06 am #

    Government just bled contractors to bail out banks ect and ruin industries when everyone is bled dry, nice country we live in, last one out turn lights out haha UK is for the bin

  12. Avatar
    Evans 18 Jul 2020 at 9:50 am #

    HMRC claims the Contractors are not contributing enough to their National Insurance tax. The simple solution to this is to extend the class 2 and class 4 National Insurance contribution presently paid by the self employed to those with limited company instead of bringing this policy that will damage the economy. Most contractors Who use Accountants have payroll set up that they run monthly where their taxes and National Insurance are calculated and sent to HMRC.

    Contractors are already paying huge amounts in Corporation Tax and the Directors taking salaries and dividends also pay taxes on these earnings. I don’t think the argument that they don’t pay enough taxes hold any water. The government can ensure that the contractors have payroll set up for their companies and or extend the class 2 and class 4 to them to take care of their NI contributions instead of this policy that will have a devastating effect on the economy.

  13. Avatar
    Stefan 18 Jul 2020 at 10:49 am #

    The smart politicians did not understand two major points about contracting : a contractor is facing risk in a very different way therefore paid differently. If i do something wrong, I am financially liable for my mistake. If an employee does, it is his employer the one liable.An employee does not need indemnity insurance and can sleep well in the night. Other risks are health – if anything happens a contractor will have no support, no pension no holiday paid no work safety, no paid expenses no job promotion no training opportunities, no equipment, while having accountancy responsibilities for your own company and sometime employees. It was a fair deal having slightly more tax while taking more risk.

    Outcome: people will quit contracting and look for local work sometime underskilled. People will not accept to pay employee taxes while expected to have contractor expenses so mobility of workforce out the window. For example me in swindon, if half my work goes out on tax , from the left over i will not travel to London for my rail project as train ticket return is 134 quid and will have better financial outcome having a local job at McDonald’s (not exaggerated, do the maths on a 350 quid per day contract, take tax out then pay ticket and compare to minimum wage). So will reduce the opportunities for people. If you live in a poorer area from the job point of view, this will be very tough as it will not be viable to travel for work.
    Secondly, a contractor often is a hope for a start up and occasionally grow. That is killed too. Permanent employment and relocation on the table for me

  14. Avatar
    Philip Parr 18 Jul 2020 at 12:52 pm #

    I paid more tax last year, including VAT, than I earnt the last time I was employed. I think some people don’t understand that whilst I may have a little bit more money in my pocket when I’m working, I’m not paid for holidays, sickness, the months my business may have no income when I’m between contracts, and that I have additional costs such as accounting, insurance, travel to places I just wouldn’t be willing to go to as a perm.

    IR35 basically wants me to bring in 20% less whilst still holding all the risk for no income between contracts, no expenses for travel, and still paying for accounting etc. The benefits of remaining a contractor under IR35 Vs taking a permie job at 40% less pay is actually so narrow that I may just become permanent again, which given the lower rates of pay will mean I’ll miss out on 30% in my pocket + business, but the government will lose 1/3 of the tax I currently pay.

    Businesses will become restricted in their ability to bring in temporary skilled labour as the market contracts. What’s the financial cost of all of this? I suspect the government won’t see a financial return from this at all.

    • Avatar
      Sean 9 Sep 2020 at 11:08 am #

      You’ll actually be losing about 55% when you factor in employer’s NI which sits at about 15%. Took a contract for a major bank inside ir35, I was taxed almost 60% of my wages. Left after a month as I realised it was not worth it.

  15. Avatar
    Meh 18 Jul 2020 at 2:03 pm #

    Contractors are the people who were spending 10/day on lunch at pret and funding all the shops, restaurants and hotels/rentalsin the city of London. Ive worked both sides of the coin, once in permanent employment it was packed lunches and no more after work boozing… Couldn’t afford it. Yes maybe it was unfair but most things are…classic case in point is benefits assessed on household income but taxes based on personal…

  16. Avatar
    A 18 Jul 2020 at 2:39 pm #

    Its insult to injury as many contractors were not kept in the jobs before covid-19 due to IR35 changes and will not get any money from government to compensate losses during corona crisis. Insane!

  17. Avatar
    Ivan 19 Jul 2020 at 7:04 am #

    If the government push this through they will sink the last part of the economy still floating. A lot of us didn’t get any help during lockdown and many of us were the first back to work afterwards. The tax paid is inversely proportional to the risks taken on not the work being done. If the government cannot see the impact this will have then they really shouldn’t be running the country.

  18. Avatar
    Sant 21 Jul 2020 at 1:07 pm #

    I work in a permanent position and as like all other permanent employees I study everyday after office hours to be on top of tech stack and my profession. I pay more than 40% in taxes and NI and make less salary then a mediocre Contractor in my organization. The contractors not only make more money , but pay almost no taxes by sharing salaries with their wives who do not work at all and pay minimum enough salary so they dont pay any NI and min tax on it. They take most of the money as dividends to both of them again saving them huge tax savings. The whole moaning about sick pay ( which most permanent people hardly take) , paterning leave ( 2 weeks maximum per kid until you are baby boomer ), company pension ( you do not stay with companies for lives nowadays) looks good on paper but in reality in terms of cost are less then what contract makes in a week. So this IR35 is good and government must open an investigation into all Contractors who were sharing salaries with their wives especially IT contractors who just did it for tax theft.

    • Avatar
      Chris 22 Jul 2020 at 9:10 am #

      Sant, clearly you are an idiot destined for a lifetime of permie employment. Enjoy the benefits while they last, but sadly I fear your kind will be the next target for zero rights employment.

    • Avatar
      Dennis 22 Jul 2020 at 4:47 pm #

      Sant,

      As your company employ both perm staff and contractors. The solution is simple. Leave the company and start contracting. If it is all so easy as you think you will mint it.

      Just a couple of words of advise though.
      1 Get all your training and qualifications now with your employer paying for it and you to attend.

      2. Build up a good savings pot now to cover the days/weeks/months that you will not be earning.

      I started as a contractor when made redundant at 55 and deemed to old, although no one said so, for a full time job.

      Having said that, I would not go back to perm. When I dislike the petty squabbling and bitching in an office I can leave.

    • Avatar
      JVT 76 30 Sep 2020 at 12:57 pm #

      I often hear this but retort with “if your company thought you were any good they wouldn’t need contractors on double your wages would they?”.

      Sit down and do the maths, there’s really not much in it, the reason I do it is to get a higher hourly rate as the company I current work for are closing next year so how could they offer me a perm job?

  19. Avatar
    JC 25 Jul 2020 at 10:47 pm #

    Seems to me they know it’s a balls up in the making. But because they’ve already stuffed the public sector with it they must now see it though and bring the private sector because nobody will want to take public sector projects if they delay. Rather than accept the damage it will do and repeal the legislation altogether they’d rather save face and plough ahead. We’ve already lost clients to blanket banning and the exchequer stands to lose tens of thousands in vat alone. We Have been in business 20 years and survived new labour, the credit crunch and COVID only to face the prospect of being put out of business by the Tories moronic pursuit of a non existent unfairness. Voted for them my entire life, never again. They will burn at the next election when we desert them.

  20. Avatar
    Lucy 11 Aug 2020 at 10:02 am #

    This country is going to pot! The lack of understanding around contractors enables the government and reporting to allow the public to believe they don’t pay enough Tax. My husband has closed his company now and taken on a permanent job. We’re now getting holiday pay, sick pay, pensions contributions from the employer etc. We are able to live of this income and have the security of certain employed benefits. These are all at the cost of the employer, with some benefits lowering the amount of tax they then have to pay. The laughable point here is this….when my husband run his company we paid upwards of £40000 in tax as a company. He then paid personnel tax upwards of £12000. Now hes’s permanently employed he pays £36000 in tax. If anyone is against contractors please tell me how this benefits the country. Roughly £16000 less revenue to the country. Put this rough figure across the entire contractor workforce and tell me how the government came up with the figures on how much they can claw back by changing this stupid rule in SUPPOSED unpaid taxes. I believe they calculate with, “oh yes” The calculator of lets believe. This rule is being pushed to evoke tax paying unrest for political gain (votes) we certainly will not be voting Tory and are now looking to move overseas, as our children’s ability to work in the future is becoming very bleak. Well done Great Britain!!!
    Rough workings. 1.77 million contractors in this country. Roughly bringing in £50000 in tax revenue calculates across the board to £85 billion. The HMRC reckons it’s going to claw back £1.3 billion. So let’s do the math. The difference in tax is roughly £14000. So this means a loss of £25 Billion. Now let’s puts all the contractors in full time work. However remember this isn’t going to happen and unemployment is going to go through the roof, especially now with COVID.
    So £36000 x 1.77 million =£63720000000. So there you are! Contractors on a rough working out bring £85 billion of tax in each year. When working full time they’ll bring in £63 Billion. That’s £20 Billion less, not quite sure where this huge £1.3 billion saving is. Now I fully appreciated these are not spot on figures by a long shot. But neither are the employed figures as people will definitely be earring less as a permanent member of staff. Lower income means lower tax paid. Means less in to the economy. The government figures do not add up. There are always the people that will flout the system and it’s about time HMRC updated their systems to catch them, instead of throwing a blanket over all contractors, saying they avoid tax. HMRC figures are all against PAYE tax, that is not the whole picture. They forget to mention the loss in corporation tax, vat and dividend tax. As usual they rob Peter to pay Paul and the figures never match up. They are barefaced LIARS!! We live in a bulk standard 3bed house on an estate. We have a towing caravan we use for holidays as we cannot afford to go abroad every summer. We have used cars on the drive, bulk standard nothing flash. So the belief all contractors live a flashy lifestyle is absolute rubbish. We’re saving for our retirement and our children’s education. My husband has supported his family so I didn’t have to work whilst raising the children. We have always had private healthcare plan to lessen the burden on the NHS. We are not entitled to child benefit yet a married couple can earn upwards of £90000 between them and still claim benefit. But because my husbands income is over the £50000 threshold we have to pay it back. Yet if we both earned £49000 we could keep it. This countries ideas on Tax are astonishing! And it looks like they’re only going to get worse.

  21. Avatar
    JVT 76 30 Sep 2020 at 12:54 pm #

    Lucy, much as I agree with the majority of your points if your husband was paying £40k in Corp tax and £12k in personal his turnover must have been at least £250k meaning he’s taken a paycut of roughly £125k!!!!

    I’m a contractor myself (not earning those figures mind you!!!) and for me the big bugbear is the lack of support given to us. Most of the employees where I work had 3 months off on 100% pay and still complained that holidays got taken off them, I had zero and used my initiative to find work elsewhere but still was not even given a thankyou for it from BOJO and his pals.
    Hopefully they will see sense when the time gets a bit closer if covid is still about, otherwise, its been a great ride!!!

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