At the wake of the pandemic, The House of Lords Economic Affairs Finance Bill Sub-Committee have recently launched a report against the fairness of the off-payroll reforms. According to the House of Lords, the government implemented framework – IR35, has never worked to manage the tackle tax avoidance by those in "disguised employment".
What is IR35 rule?
Before digging deep into the pressing matter at hand, it is essential to know about the IR35 rule. In simple words, the IR35 rule is a framework crafted by the government in 2000 to tackle tax avoidance by those considered as ‘disguised employees. It is considered to be an anti-avoidance tax legislation, curated to "disguised employment".
The term "disguised employees" is a term used for employees, who are able to avoid tax by receiving payments from their client through an intermediary often a ‘limited company’ setup by them. In the absence of the intermediary, they would share a relationship with their client, wherein if they were been paid directly, it would make such individuals, employees of the client.
Concerns propounded by the House of Lords
The House of Lords Economic Affairs Finance Bill Sub-Committee has put forward their concern regarding the complicated policy and how it is riddled with unfairness, issues and partiality. Further, the committee has propounded that the Government has failed to notice the impact of IR35 on the gig economy. Therefore, The House of Lords has produced a report regarding the same titled ‘Off-payroll working: treating people fairly’.
Within the report, created by the Economic Affairs Finance Bill Sub-Committee the following points have been highlighted -
- The framework of IR35 is flawed; similarly, it makes the off-payroll system blemished.
- The government has colossally underestimated the cost for businesses to comply with the framework in the United Kingdom and have incorporated the changes.
- The government framework didn't consider the apprehensions raised the stakeholders.
- The authority has been oblivious while making the framework, regarding the further united behavioural reforms.
- The House of Lords also pointed out that the changes made in the off-payroll would bring about the scourge.
- The committee acknowledged the concerns raised by contractors on "Zero-rights employees", where they are taxed as employees but do not get any employment rights.
- The House of lords have raised the question regarding the utility of the CEST tools for its purpose.
- The committee has suggested the government to fathom about the unresolved issues on this specific matter.
After the publication of the report, different noted figures of the country have commented on the topic. Among such personalities, Dave Chaplin, the Chief Executive Officer of the Contractor Calculator and the Director of the "Stop the Off-Payroll Tax Campaign", have praised the committee. He commented that he agrees with the House of Lords and in his opinion, IR35 rule has been crafted on the crux of misguiding, unevidenced and brutal factors.
Why has the committee decided to put forward its concern now?
The House of Lords Economic Affairs Finance Bill Sub-Committee have concluded their report on the light that the economy of the United Kingdom is facing a catastrophe, since the denouement of World War II. The committee suggests that, if the nation desires to economically get back on its feet within the next 12 months, from the crippling influence of the Novel Coronavirus, then the government should reconsider its decision.
The decision being the incorporation a new hindrance over the commercial sector, with the proposition of the prevailing off-payroll.
Although the government have adjourned the IR35 rules considering the present crisis. Yet, the question arises how the commercial sector recovering from the influence of the pandemic would handle the burden the following year?
Other than proposing the government to think through their decision, the committee has suggested providing certainty to the businesses as well. The commercial sector ought to know whether the government would announce and incorporate off-payroll rules by April 2021 or gradual fall of the economy due to Covid-19 would make the government adjourn the regulations.
It is indeed true that the economy of the country (and the world economy) is experiencing a steady decline due to the outbreak of the pandemic. Therefore, it should be said that the workforce of the country should be provided with a flexible and cooperative environment to restore the balance on the economy slowly.
We urge everyone to join the ‘Stop-the-off-payroll-campaign’, a movement created by Dave Chaplin. Every voice matters and you can also make the difference!