The controversial Off-Payroll legislation is back in the news as MPs are scheduled to meet next week to vote on the amendment that is to be tabled for the Finance Bill 2019.
The amendment proposes to postpone the private sector rollout till the tax year 2023-24. The amendments were included in the second reading of the Finance Bill last month. The proceedings which were supposed to come into effect on 6th April 2020 got delayed due to the coronavirus outbreak across the world. It will now be postponed until 6th April 2021.
The figures for the expected total revenue from the policy are estimated to be in the range of 1.2 billion pounds in 2020-21. The estimation method that is used for the policy is clearly mentioned in Budget 2018.
The objective of the bill is to increase compliance with existing off-payroll working rules in private as well as third sectors. In this way, the right tax can be deducted, and it also becomes easy to assess national insurance contributions in future. However, it is likely to affect Umbrella company workers negatively.
Criticism for the Off-Payroll bill
The government wants to implement the off-payroll reforms which have met with a lot of criticism. As per the proposed terms of reforms, the end clients will be responsible for assessing the employment status of their off-payroll workers and fee-payer (which is usually the agency) will bear the tax risk if non-compliance is found.
Arecent report from the Lords Committee states that the framework is flawed, and there is no evidence of this working competently for workers working through an intermediary, and only adds to confusion with no clear direction for the agencies and end clients, who will be forced to assess their workforce.
Voting to pass the bill
The MPs are supposed to meet at the House of Commons in the coming week to vote on the amendments. Conservative MP David Davis has tabled the bill that suggests postponement of the rollout of these amendments for the private sector till 2023-24.
To further push the amendments, the bill needs clearance from the majority in the House. Going by simple calculation, at least 40 MPs are required to vote in favour of the bill. Apart from that, this also depends on voter turnout and also the votes of non-conservative MPs in the house.
Opposition from Contractors
Critics think that the legislation should not come into effect for next three years, so it will give more time for businesses, the government and the contractors to prepare for the changes.
People who are working against the implementation of these amendments want direct interaction with the local MPs to stop the bill. More than 3,000 campaigners have worked hard to highlight the drawbacks of these proposals by the government.
Many contractors are expected to join the campaign to stop the bill, and they can do so by getting in touch with their local MPs. This can mount the pressure on the government, and many MPs may be willing to back the claims of contractors.
The dilemma:
The biggest problem with the bill is that many contractors who were previously considered outside of IR35 will now come automatically under IR35 due to blanket assessments and clients not willing to take the additional administration burden.
While this does not cause any harm when it comes to taxing them for their earnings, the problem comes with these contractors not being able to access various other benefits that should follow if they are deemed as employees. It is simply unfair for someone to pay taxes as an employee and not receive the same benefits!
The government has not worked completely on the bill as it has not taken into account the various problems associated with contract labour in the private sector. In this situation, contractors bear a lot of risks, as they get taxed more with these new regulations.
Will the bill get support?
When it comes to judging the employment status of any individual, HMRC is not having a transparent approach and their own understanding of the law has been flawed,which is evident from the numerous IR35 and employment cases they have lost in recent years. While the employment status has some consideration for tax purposes, it has a different consideration for employment law purposes. In this way, the contractors will suffer from both ends due to this bill.
In the wake of all the criticism that has come out in recent weeks, HMRC is still not prepared to make any changes to the amendment. Everything depends on the voting that is likely to be held this week. If the bill gets enough support from MPs, it may be implemented in future.
Final words:
The private sector, on the other hand, is considering the additional cost that this bill will add to their accounts. After considering all these options, the government may bring in further changes or altogether scrap the bill depending on the support it gets in the parliament.
If you are a contractor or agency worried about the IR35 or off-payroll reforms, please contact us to speak to one our compliance managers.