Snap election risks IR35 reform being rubber-stamped

A general election in under 50 days’ time affords too small a window for complex changes to IR35 to be fully scrutinised and so the reforms must be shelved, the chancellor is told today.

In a letter to Philip Hammond, a tax body says most of Finance Bill 2017 should be dropped, so the inevitably truncated period for scrutinising it can focus on only “essential” measures.  

Confirming to ContractorUK that the IR35 reforms are ‘non-essential,’ the Chartered Institute of Taxation said the April 6th framework required the bill to give it permanent legal effect.

‘Drop the off-payroll rules’

But because parliament has to be dissolved 25 working days before polling day -- June 8th – the committee and report stages of the bill are likely to be compressed into a single day.

“Amendments are frequently made by government during a bill’s passage”, the CIOT said. “Fuller debate [than the anticipated single day] might have led to more airing of concerns.”

“Dropping this measure [the off-payroll framework] from the bill need not make much difference if it were brought back -- hopefully improved -- in a post-election bill.”

As to the improvements sought, the institute cited the lack of any form of appeal mechanism, and no apparent recourse if engagers make arbitrary decisions on certain job descriptions.

‘A year’s grace’

It also cited “uncertainty” for PSCs who disagree with the IR35 decision, in terms of what to do while it is checked and if the body’s response is so bad the PSC has to “keep going back” in the hope it becomes satisfactory.

“A year’s grace [before] applying any penalties if bodies get the decision wrong might be a sensible way forward, whether the legislation is passed before or after the election,” CIOT says.

Chris Bryce, chief executive of contracting body IPSE, sounded surprised the government needs reminding to learn from its mistakes, when those mistakes are high-profile and recent.

“Having seen the damaging fallout of the NICs rise last month, we want the new government to carefully consider any tax changes for the self-employed”, he said.

“The proposed change to NICs was widely criticised before being abandoned, and we are already seeing the fruits of bad policy with the changes to IR35 in the public sector.”

‘Problem areas’

To nip such fruits in the bud, the IR35 measures should be parked for careful consideration until after the election, and only a “basic” bill -- not the full (and record) 762 pages -- should be passed now, says Crowe Clark Whitehill.

“We have to hope parliament does take a sensible approach and drops them [the off-payroll measures] until [a] post-election Finance Bill, giving time for the problem areas to be properly ironed out”, the accountancy firm said.

“Or if that is not possible, move the start date [of the rules] to 6th April 2018 to allow time for organisations to deal with the major changes and HMRC to issue detailed guidance rather than acting in haste.”

‘Great danger’

If neither option is taken, cautioned the firm’s Susan Ball, the contractor sector is in “great danger” of having the off-payroll rules permanently enshrined “without any of the normal scrutiny, [and] with no detailed guidance from HMRC”.

FreeAgent, an online accounting solution for single-person businesses, agreed, by saying that the sector is in a state of uncertainty due to the “many unanswered questions” about the rules.

The Freelancer and Contractor Services Association echoed. “We're very concerned that these significant changes might be rushed through undemocratically and without proper scrutiny.

“[We have] already been in touch with MPs and government officials to strongly suggest these changes [to IR35 in the public sector] be deferred to allow for due process and consideration.”

‘Disappointed’

If the off-payroll rules are rubber-stamped (they came into force on April 6th due to a Budget resolution passed on March 14th), it is unlikely to win the Theresa May-led government the praise of an already disaffected contractor workforce.

“Many freelancers and contractors are disappointed in The Conservative Party, given recent IR35 reform, not to mention controversial changes in last month’s Budget,” said Seb Maley, the chief executive of status advisory Qdos.

“On the other hand, The Labour Party -- who actually introduced the IR35 legislation -- aren’t thought of as particularly business-friendly. It begs the question: who is the party for the self-employed?”

The Association of Independent Professionals and the Self-Employed reassured: “[We] will be engaging closely with all the major political parties to ensure the needs of the UK’s self-employed population are heard and acted upon.”

The association’s Mr Bryce added: “It’s imperative that whatever the election outcome, the self-employed remain a top priority for the government who must take time to fully understand why they are so vital to UK plc.”

Apr 21, 2017