Off payroll working


On 27 April 2020 the House of Lords Economic Affairs Finance Bill Sub-Committee published its report: Off-payroll working: treating people fairly.

From April 2020, the government had planned to extend the off-payroll working rules being used in the public sector, to large and medium-sized entities in the private sector. Due to the current Covid crisis these changes have been postponed until April 2021.

Given that so many of us are exploring the merits and challenges of working from home and it seems likely the way work is delivered in the post Covid world will look different to the conventional one job, one location model we were used to, the publication of this report is timely.

Yes again, HMRC has been asked to think hard about the way it is proposing it will operate with the committee suggesting that the government needs to consider the damage that may be done to the diversity and flexibility of the labour market if it goes ahead with IR35 proposals as currently designed

The first sentence of the report says: “The IR35 rules - the government’s framework to tackle tax avoidance by those in ‘disguised employment’ - have never worked satisfactorily, throughout the whole of their 20-year history. We therefore conclude that this framework is flawed.”

The report suggests continuing the work of an independent review of modern working practices by Matthew Taylor in 2018, developing its ideas to be responsive to the changing labour market and to find a solution that could work for both tax and employment law.

The sub-committee also recommends undertaking an independent review of the implementation of the off-payroll rules in the public sector and analysing the impact of those rules on the labour market. We need to learn from the past three years, because how the government’s proposals affect the decisions businesses and contractors make, will be important for deciding how we tax work in the future.

The report comments: “Any future review of the impact of the measures must take into account the wider impact of the changes on the UK’s labour market and the broader economy.”

The subcommittee also points out the risks associated with engaging umbrella companies, the ongoing deficiencies of the service to check employment status for tax (CEST) and the status determination process, as well as possible underestimates in the government’s assessment of the costs to business of the proposals.

It will be interesting to see if as a result of this report HMRC consider revisiting this matter.

 The report concludes that in the extra year before any change takes place, alternatives to the off-payroll rules that are fairer and less risky should be considered which foster a flexible workforce in which contractors play a vital role.

It has recommended that the government should announce by October 2020 whether it will indeed implement the off-payroll rules in April 2021, or whether any ongoing impact to the economy resulting from the COVID-19 pandemic will require their implementation to be delayed further.

Interestingly it also puts forward the view that the government designs a short-term means of raising revenue that will not prove burdensome for businesses as they emerge from the COVID-19 pandemic, and a long-term alternative solution to the off-payroll working rules that are:

  • Certain
  •  Simple
  • Fair
  • Supportive of growth
  • Administratively straightforward, and
  • Enforceable 

Whilst if we could turn back the clock and prevent the current Covid crisis from occurring, this is just one of what may be a number of implications it will have on current, proposed and future tax policy.