IR35: five reasons it might NOT go ahead
IR35 is one of the biggest looming changes to payroll and accountancy law for many years.
The reforms are set to radically alter how private sector organisations handle the tax status of their contractors, affecting payroll processes for large private employers and recruiters.
At least they were until the COVID-19 pandemic struck, leading to them being put on ice until April 2021.
So, will the off-payroll working legislation changes actually go ahead next year as planned? Will they still become law in the current form?
Below we look at 5 reasons why it might not.
COVID-19 pressures mount
The chief secretary to the Treasury, Steve Barclay, insisted when the delay was announced that IR35 would go ahead in 2021. But who is to say further delays won’t occur? With warnings of a second wave of the virus, and the potential repercussions, it’s quite conceivable that the Government will be forced into shelving forthcoming law changes again – including IR35. Ministers are already under severe pressure to ease the burden on businesses. Could shelving IR35 be one way to do so?
A mini-Budget is coming
In July, we’re expecting some major Treasury announcements, with Chancellor Rishi Sunak expected to deliver a mini-Budget. No doubt, most of this will be about kickstarting the shrinking economy and trying to find ways to combat what is expected to be the biggest recession ever recorded. It’s quite possible that, in order to help businesses who are struggling already, officials may look at easing compliance requirements. Could this include putting IR35 back further – or even altering the current form it’s taken?
Major flaws identified
A recent House of Lords Report highlighted serious problems that people against the legislation have been using that to fuel their argument. The House of Lords Economic Affairs Finance Bill sub-committee deduced that the legislation was ‘flawed and ‘never worked satisfactorily’. Lord Forsyth of Drumlean, Chair of the House of Lords Economic Affairs Finance Bill Sub-Committee, said: "Our inquiry found these rules to be riddled with problems, unfairnesses, and unintended consequences. A wholesale reform of IR35 is required.”
There is a considerable amount of support to stop the legislation, with movements such as Stop The Off-Payroll Tax Campaign gaining backing from MPs. In February, hundreds of contractors and freelancers from all over the UK protested in Westminster against the changes. Could this growing call to abolish the reforms result in them failing in future Parliamentary votes? Additionally, if IR35 does get through Commons unchanged, the National Insurance provisions must also go through the Lords, where the government lacks a majority.
Opposition from industry
The blanket approach used for determining contractors is far too broad, according to opponents, This has resulted in many large organisations such as Barclays and HSBC stating they will no longer hire contractors via PSCs due to IR35. Again, given the economic crisis, will the Government reconsider these points as creating too much risk?
What’s likely to happen?
Financial Secretary to the Treasury, Jesse Norman, indicated the Government would ignore the report’s findings, meaning IR35 would continue as planned for April 2021. But if opposition continues to mount, the Government may struggle to push through IR35 without amendments. Only time will tell but accountants should continue to monitor the situation and advise their clients accordingly.
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