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Finance Bill: IR35 resistance falls at final fence

Campaigners lobbying for amendments to the off-payroll rules and the loan charge were thwarted in the third reading of the Finance Bill in the House of Commons on Wednesday night.

30th Jun 2020
Tax Writer Taxwriter Ltd
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Palace of Westminster (Houses of Parliament) and Big Ben

After a game of parliamentary cat-and-mouse, campaigns to alter plans for the private sector off-payroll rules and loan charge came up against the government's big majority in the report stage for the draft Finance Bill 2020 this week.

Opposition amendments

The proposed amendments put forward by opposition parties ahead of the debate covered topics including four groups of amendments seeking to delay or remove the off-payroll working rules. The options were:

  • Remove the entire schedule containing the off-payroll working rules from the Bill.
  • A delay in the introduction of the off-payroll rules to allow a review to be carried out by the end of 2025, which should include an assessment of:
    • impact on individuals’ livelihoods
    • impact on individuals’ employment rights
    • relevant business practices
  • Delay the introduction of the off-payroll working rules until April 2023.
  • Make roll-out of off-payroll working to the private sector conditional on introducing employment rights to those deemed to be inside IR35, so they are treated under employment law as having exactly the same rights as employees.

All of these options were defeated by sizeable majorities on Wednesday night.

Following the conclusion of the two-day report stage. The bill will now go to the House of Lords, where the tradition is that the Lords will not amend a “Money Bill”. The post-report stage version of the Finance Bill, is known as the Lords Bill and will generally be the version that is presented for royal assent (approved by the Queen), and becomes law as the Finance Act.

“Despite concerns raised by a number of MPs, who rightly exposed the flaws of this legislation and made it clear they do not believe changes are necessary, it seems there's no turning back now,” commented Qdos Consulting CEO Seb Maley (see comment below). All that's left for contractors, engagers and their advisers is to prepare to implement and mitigate the effects of the new regime in good time, he added.

Loan charge

Although the loan charge was legislated for in F(No 2)A 2017, Sch 11, and came into effect on 5 April 2019, this Finance Bill amends the imposition of the charge as recommended by the Amyas Morse report.

The main changes proposed were:

  1. Removal of loans from the charge which were advanced before 9 December 2010.
  2. Loans made between 10 December 2010 and 5 April 2016 are removed from the charge, if they were fully declared in tax returns, and HMRC has not taken any action to open an enquiry or raise an assessment before 6 April 2019. 
  3. An election to allow taxpayers to treat the outstanding loans (which remain subject to the loan charge) as three equal tranches of income falling in the tax years 2018/19 to 2020/21.
  4. Where the taxpayer died before 5 April 2019 the loan charge is not imposed on his estate.
  5. Remove interest charges from the amounts of unpaid loan charge between 1 February and 30 September 2020, and those amounts payable for 2019/20 if they are paid by 31 January 2021. The taxpayer must file their 2018/19 tax return by 30 September 2020.
  6. Taxpayers must make a full declaration to HMRC of their disguised remuneration loans by 1 October 2020.
  7. Require HMRC to repay amounts paid (tax and interest), or treated as paid, under the loan charge on loans that fall under points 1 and 2 above. The taxpayer must apply for this treatment by 31 October 2021.

Fairness clause

An amendment proposed by a cross-party group of MPs (NC31) sought to provide further fairness to the exemption of loans from the charge under condition two above. It would have restricted the loan charge to cases where the loan was deliberately not declared as income on the taxpayer’s return for 2015/16 or an earlier year. 

Barrister Keith Gordon said the amendment would have removed “the inherently unfair loan charge” from most affected taxpayers, allowing the protections conferred by statute to have the effects as intended by Parliament.

But his pleas came to nothing, as there was no time allowed to debate the all-party group’s amendment. Liberal Democrat MP Sir Ed Davey MP, one of the co-chairs of the Loan Charge All Party Parliamentary Group commented: “It’s hugely disappointing that there wasn’t a vote on New Clause 31 in the Finance Bill, a simple amendment to restore basic taxpayer rights and remove the retrospective Loan Charge.

“With 54 MPs signing this amendment and with so many others expressing concerns about retrospective taxation, we had hoped that the House of Commons might have backed this. The issue now goes to the House of Lords and whilst the Lords cannot remove the retrospection, we hope our members who are peers will again raise the injustice of the loan charge and call for changes.”

Government amendments

Likely to enjoy more success are government-backed amendments to tweak the tax rules to accommodate the effects of the coronavirus shutdown that prevented people from travelling back to their home countries (SRT) and to complete sales of their homes (SDLT).

Draft provisions to tax the grants payable under the business support schemes and to apply penalties where those support schemes are abused are also likely to make it into the final version of the bill.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
02nd Jul 2020 08:45

Seb Maley from Qdos was in touch first thing this morning to report that MPs voted against an amendment that would have delayed the changes until the 2023/24 tax year.

As a result, when the bill gets Royal Assent, contractors will lose the right to set their IR35 status when engaged by medium and large private sector companies from 6 April 2021 . This will become the responsibility of the company engaging the worker, with the liability transferred from the contractor to the fee-paying party.

Maley obviously wasn't happy about the result: “Despite concerns raised by a number of MPs, who rightly exposed the flaws of this legislation and made it clear they do not believe changes are necessary, it seems there's no turning back now.

“The reform is short-sighted and if mismanaged poses a risk not just to contractors but to hiring organisations and recruiters. It’s therefore up to private sector firms to prepare for the changes, which can be managed with the right approach. However, work must start immediately - I can’t stress enough how important this is.

“For companies to compliantly engage genuine contractors beyond April 2021, they must avoid risk-averse policy decisions and instead prioritise fair and considered IR35 status assessments. Whilst our work alone shows that thousands of businesses will be ready for the changes, many other companies - from banks to oil firms and pharmaceutical giants - should rethink how they plan to manage this reform.”

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