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The Government to ignore the House of Lords and press on with reforms to off-payroll working

Updated: Sep 2, 2020

Following the House of Lords Economic Affairs Finance Bill Sub-Committee inquiry into the forthcoming changes to off-payroll working rules, have the Government in their response unwittingly cleared a path to zero rights employment and the proliferation of non-compliant umbrellas?

The House of Lords report did not pull any punches, stating "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"

Furthermore, the House of Lords Economic Affairs Finance Bill sub-committee urged the government to use the delay caused by COVID-19 to give serious consideration to the fairer alternatives.

The Government in its response confirmed there will be no further delay or change in implementation, suggesting that businesses have had enough time to prepare and to remove any disparity with the public sector, it remains committed to introducing the changes to off-payroll working in the private and voluntary sectors with an implementation date of 6th April 2021.

HMRC will however soften the initial blow by adopting a ‘light touch’ approach to compliance in the first twelve months of the reform.

Tax Revenue is more important than Employment Rights

The House of Lords report was also clear in its summary that “many contractors had been left in an undesirable ‘halfway house’: they do not enjoy the rights that come with employment, yet they are considered employees for tax purposes. In short, they are 'zero-rights employees'.

Separating employment status for tax purposes from employment status under employment law also fails to acknowledge that contractors bear all the risk for providing the workforce flexibility from which both parties benefit.”

Whilst acknowledging it will continue to work across departments on employment rights issues, the Government insists “the unfairness of contractors paying less tax than employees when their engagement meets the test of an employment relationship, and the resulting loss of revenue needed for important public services, is a long-standing problem that the Government cannot delay addressing any further.”

The use of non-compliant payroll Umbrellas is likely to increase

Whilst it is not yet possible to quantify the potential behavioural effects of the new rules, general opinion suggests that many contractors who are soon to be deemed an employee for tax purposes will be encouraged to use a payroll umbrella.

There is widespread acknowledgement from both the House of Lords sub-committee and witness testimonies that without proper regulation, there could be an expansion in non-compliant umbrella companies.

This opinion is echoed by our Chief Executive, Chris Mattingly “Umbrellas serve an important role, but they also need to be properly regulated and approved. Without this, many contractors could be drawn into tax avoidance schemes. For compliant umbrellas like us, the lack of oversight and regulation only serves to tar all umbrellas with the same brush.

We are already seeing examples of many contractors being offered unrealistic take home pay rates and without proper regulation of the industry, this is likely to get much worse over the coming months. Until the Government address this, we strongly encourage anyone looking for an umbrella company to make sure that they are either Professional Passport or FCSA accredited.

We ourselves are Professional Passport accredited and for anyone looking to work with us, we would be more than happy to discuss or provide evidence of our compliance.”

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