Government reply to Lords' IR35 inquiry criticised as inadequate

The government has said nothing new in an official reply to a damning Lords inquiry into private sector IR35 reform which found a litany of problems with the incoming framework.

So quite at odds with the over 700 submissions which the peers received and based their 67-page report on, the government dispenses with all their criticisms in just over seven pages.

Seb Maley, CEO of Qdos summed up the government response: “It's predictable, inadequate and shows the government has no intention of listening to advice regarding IR35 reform.”

'Whoever you are, you will be ignored'

Kate Cottrell, co-founder at Bauer & Cottrell said: “This stance by the government is called sticking to the same reasoning for years, despite receiving 100% contrary evidence. 

“So unfortunately, it matters not if you are a contractor, an expert, an MP or indeed a Lord, you will be ignored.”

The ‘conclusion’ section in the government’s response states that it “agrees” with the peers that the delay of the rules from April 2020 to April 2021 “should be used productively”.  

But it fails to specify how though, so the government then repeats a vow to run research into the public sector IR35 rules – the model for the 2021 reforms which have applied since 2017.

'Enhance education'

After a recycling of HMRC’s existing commitments (‘enhance education and support to affected businesses and individuals’), the government then thanks the Lords for their time.

Former tax inspector Ms Cottrell, who HMT previously hired to advise on IR35, says many onlookers will conclude that providing evidence to committees is now a “total waste of time.”

“Any goodwill that existed is in danger of being lost,” she says, referring to experts giving up their time to contribute to fact-finding exercises by politicians and government departments.

“Maybe if no one responded to these government requests then they would be unable to claim that they have ‘consulted with stakeholders’ and ‘all is fine.’ Perhaps this is the way to go.”

'Sweeping it all under the carpet'

Having glanced the government’s reply to Lord Forsyth and other peers on the Economic Affairs Finance Bill Sub-Committee, a contractor echoed the status adviser’s despondency.

“The system seems so deeply corrupt. It's been made very clear [to the government] with facts and logical arguments that IR35 needs to be at a minimum delayed and overhauled.

“But those….[in power] just keep sweeping all that under the carpet and finding ways to push it forward regardless,” the contractor said. “I'm not really sure what you can actually do against that.”

“I find it incredible,” agreed Mr Maley of Qdos, which runs IR35 contract reviews.

“It’s clear from the government’s response that it still has its head buried in the sand when it comes to IR35, with recommendations in the Lords report having been all but ignored.”

'Falls well short of what's required'

On CEST in particular (the Lords say it “falls well short of what is required”), the IR35 reviewer said the HMRC tool continues to be “unreliable and incapable of assessing tax status correctly”.

But in their reply to the peers, the government says it “disagrees.”

It says that the 80% determination rate of the tool has seen a “significant increase” in recent months; that a “dedicated helpdesk” at HMRC can assist taxpayers whose status is ‘undetermined,’ and that ‘usability updates’ are being explored.

'Fight is already lost'

“Irrelevant,” a contractor wrote online. “The big firms [like the major] banks have already stopped engaging PSCs as a result of the threat of IR35 [reform] back in March.  The fight is already lost.”

“So much for the free voting system,” a freelance Business Analyst agreed on a thread about Boris Johnson and Rishi Sunak personally intervening to stop a delay to IR35 reform.

“All those contractors who took the time to lobby their MPs completely wasted their time.”

'Wake up and smell the coffee'

Ms Cottrell agrees, but suggested that even if they haven’t wasted their time, the government  will not change tack because even if it does have IR35 reservations privately, revenue is now needed like never before.

“I wonder if they realise with the impact of Covid-19, the frail state of the economy, the lack of jobs plus new ways of working, that their claims of  ‘risks to the exchequer’ and the vast sums they claim are underpaid will NEVER materialise. So they are just going to run with it for the hell of it. 

“It’s either that,” she said, “ or maybe the government will consider giving contractors a ‘right to support’ in exchange for being inside IR35. We will probably never know, but all those claiming they have influenced government policy or that government is listening to their representations need to wake up and smell the coffee.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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