IR35 reform will now certainly be introduced to the private sector in April 2021, after MPs voted against an amendment to the Finance Bill proposing that the changes should be rolled out in the 2023/24 tax year.
Despite strong opposition from a number of high-profile politicians, including David Davis and Sir Ed Davey, the vote held at the Report Stage of the Finance Bill saw 317 Conservative MPs reject the amendment. The 254 MPs who in favour of an extension to the delay represented other political parties and included 180 Labour MPs.
The arguments put forward by the likes of Davis and Davey, along with Alison Thewliss, Andrew Jones and several others, highlighted a number of flaws in the reform and the IR35 legislation itself.
Fears that zero rights employment will be created by the changes was a key theme, as was the fact the Government has chosen to ignore the damning House of Lords report into IR35. The significant challenges facing the economy - of which there is no end in sight - was also cited as another reason to postpone reform.
However, after nearly two hours of lively debate and with the session coming to a close, the Financial Secretary to the Treasury, Jesse Norman, dismissed these concerns - and those made about the Loan Charge also - in a matter of minutes.
Norman then reiterated the Government’s argument that IR35 non-compliance will cost the Treasury well over a billion pounds every year and urged politicians - the vast majority of whom voted electronically due to COVID-19 - to stand firm and vote against the amendment.
Overall, MPs listened. With the amendment having been rejected, reform to the off-payroll working rules in the private sector have been accepted as part of the Finance Bill, with a 2021 implementation date.
The Third Reading of the Bill will soon take place, before it is then passed through the House of Lords. However, both of these events are considered formalities, meaning hopes of a last-minute U-turn from the Government are now over.
Similar to IR35 changes rolled out in the public sector in 2017, medium and large businesses will become responsible for administering IR35, with fee-paying parties set to carry the liability. The onus therefore is on the private sector to prepare immediately for the rollout.
While considered extremely short-sighted, IR35 reform can be managed. Recruitment agencies and hiring organisations are advised to prioritise accurate IR35 status determinations and avoid risk-averse decisions, such as contractor bans.
With over 25 years’ experience, Qdos is a specialist contractor tax, IR35 and insurance adviser, handling over 1,600 IR35 enquiries. We are working with over 2,200 businesses, helping them prepare for and manage reform to the off-payroll working rules.
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