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Chair of the Treasury committee: IR35 should be “abolished as soon as possible"

2-minute read

Sam Bromley

30 October 2020

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The chair of the Treasury committee, Mel Stride, told a hearing in October that IR35 is best abolished – but one expert says that this rhetoric is nothing new.

What’s more, at the same hearing, the Association of Independent Professionals and the Self-employed (IPSE) said that going ahead with IR35 changes when the UK economy is in crisis is “slightly perverse”.

IR35 reform in the private sector will make medium-sized and large businesses responsible for working out a contractor’s employment status for tax, not the contractor themselves.

The reform was scheduled to start from April 2020, but was delayed by a year because of the coronavirus outbreak.

Flexibility should be encouraged to “help the UK economy out of a crisis”

The hearing was about ‘tax after coronavirus’ and IR35 rules were discussed several times.

When wrapping up the meeting, Mel Stride argued for tax simplification, saying that the “dreaded best abolished as soon as possible.” He suggested that this could be achieved by making different employment statuses ‘tax neutral’.

Derek Cribb, CEO at IPSE, used the hearing to argue that this isn’t the right time for new off-payroll legislation. With half a million people falling out of self-employment over the last six to nine months, he said now is when “you want to encourage people to be flexible and to help the UK economy out of a crisis.”

This all follows a House of Lords select committee report from April, which urged wholesale IR35 reform after finding the rules to be “riddled with problems, unfairnesses, and unintended consequences.”

But the self-employed have heard this before

The government has constantly faced calls to rethink IR35 reform, but it took the coronavirus pandemic to force a delay until 2021.

And Dave Chaplin, chief executive of Contractor Calculator, said that despite Mel Stride’s comments, the “political will isn’t there to change matters, even if the potential outcome is a functioning tax system.”

“Everyone has been talking about the need to do away with IR35 for 20 years. This is nothing new.”

With the changes almost certainly due to start in April 2021, it’s important that contractors and businesses that hire them continue to prepare.

How could the rules be improved?

While IR35 reform is still due to go ahead, Derek Cribb, IPSE’s CEO, made suggestions about how the rules could be improved in the long-term:

  • ‘self-employment’ should be given a much clearer definition in law, with tax treatment being harmonised around this definition
  • create a new ‘freelancer limited company’ structure, so contractors using the structure can protect their personal assets while having more certainty about their taxes and employment status (freelancer limited companies would need to meet certain criteria and demonstrate they’re not disguising employment)
  • as employer’s National Insurance makes up the bulk of the difference in tax take between employees and the self-employed, create an ‘engager’s tax’ to raise taxes from businesses using contractors, rather than placing the burden on the self-employed

What do you think about Mel Stride’s comments? Let us know in the comments below.

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