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Don’t enact IR35 in Finance Bill, urges ICAEW

5 June: The government should hold off enacting measures to introduce the new off-payroll working regime and use the time thoroughly to review its implementation, according to ICAEW’s Tax Faculty.

In its latest representation on behalf of ICAEW, the Tax Faculty concludes that the government shouldn’t consider the proposed amendment to the Finance Bill 2019-21 that would insert measures enacting the expansion of the off-payroll working (OPW or IR35) regime to large private sector companies.

The changes had been due to come into force on 6 April 2020, but were postponed until April 2021 as part of the government’s COVID-19 support package for businesses.

According to the Tax Faculty the delay provides an opportunity for reflection on the detail of the measure itself and to undertake a comprehensive review, encompassing the taxation of the self-employed. 

Given that many private sector organisations have already incurred significant costs and implemented systems changes the Tax Faculty argues that the government has a unique opportunity to consider whether the rules currently being legislated will work as intended, and to act upon the evidence of those businesses.

The Faculty also argues that there are a number of matters that require resolution before the measure should be adopted including:

  • contractors being made to pay the cost of employer national insurance contributions;
  • HMRC’s strategy for dealing with certain non-compliant entities;
  • aligning employment and social security rights; and
  • contractors who are deemed employees under OPW rules need the right to receive statutory payments, eg statutory maternity pay.

The Tax Faculty’s recommendations chime with the conclusions of the House of Lords Finance Bill Sub-committee review into OPW, which concluded in April that: “Government must address IR35’s inherent flaws and unfairnesses.”

The representation also makes a number of important technical recommendations which would improve information flows and compliance, as well as enable HMRC’s check employment status tool more accurately to determine employment status.

Further information

  • Read the representation (ICAEW REP 33/20) in full.
  • ICAEW’s response to the technical consultations on draft Finance Bill legislation published in July 2019 (ICAEW REP 86/19).
  • ICAEW’s response to draft PAYE and social security contributions secondary legislation published in January 2020 (ICAEW REP 03/20). The Tax Faculty has also published questions and answers explaining how to implement the new rules. These were given to HMRC in March 2020 to agree and are available as TAXguide 07/20 on cross-border issues and TAXguide 08/20