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MPs call on HMRC to help contractors forced onto the payroll by IR35 reform

Excluded contractors on payroll due to IR35 need COVID-19 support, states new report  

HMRC has been urged to roll out support to contractors who went PAYE due to incoming IR35 reform but still fail to qualify for the furlough scheme because they transferred onto the payroll too late. 

The recommendation was one of a number put forward by the Public Accounts Committee, in a report published on 20th January that assesses the performance of HMRC in 2019/2020. With regards to the IR35-related issue, the committee, formed by cross-party MPs, gave the tax office six weeks to...

“Consider the support it can provide for those taxpayers that have, due to the IR35 rules, moved onto payrolls and missed out on support from the COVID schemes, for example, by reviewing whether it can use an average of wages in the past three years to determine grants.”

Deeper into the report, the committee reiterates its concern that some individuals “may have moved onto payrolls because of HMRC’s IR35 rules, but were not employed at the relevant time, and so lost eligibility to COVID-19 support schemes.”

In both instances, the PAC are referencing contractors who stopped working via their personal services companies as a result of IR35 reform in the private sector, but had not started a PAYE payroll scheme on or before 30th October 2020 - the cut off date for the Coronavirus Job Support Scheme applications. 


Committee highlights contractor bans in response to IR35 reform

This performance report also highlights that some contractors who took up employment positions - whether via umbrella companies or as fixed term or permanent employees - did so “because of the pre-emptive actions” of businesses they were originally contracting for. 

The PAC are of course alluding to companies that have stopped engaging contractors as a direct result of IR35 reform. Some firms have either insisted contractors work through umbrella companies or become employees - two strategies adopted as a workaround to IR35 changes, given that the IR35 legislation doesn’t apply to those engaged as employees. Others have reportedly blanket-placed contractors inside IR35 - a non-compliant and risk-averse approach to IR35 changes. 

It seems likely that there are thousands of individuals who now find themselves working PAYE due to IR35 reform - a move these contractors would not have made otherwise.

In response to this report, our CEO, Seb Maley, told Contractor UK, it’s important that the Government recognises this group, given many of these contractors felt they “had no real choice” but to go employed. Seb also added:

“Many experts, myself included, have made clear our concerns about the gaping holes in the COVID-19 support. This report brings to light even more flaws in the available help, not to mention some of the damage caused by IR35 reform.”


Taxman told to offer “explanation” to excluded groups

Having reviewed the “quirks in the tax system” which has left  3m limited company directors and self-employed workers to fall between the gaps of Government support, the PAC also asked for HMRC to offer an “explanation” for the reasons why it cannot help those excluded. 

With the Chancellor having promised that “nobody would be left behind” early on in the pandemic last year, it should come as no surprise that the government now finds itself under mounting pressure to roll out meaningful support to these groups nearly 12 months later.  

Not content with only receiving a response from HMRC, the PAC also instructed the tax office to outline specifically what they need to determine the eligibility for financial support for those who have been left behind. 

But will the Government listen and tailor the support available to these groups? It remains to be seen. However, with the Budget set for 3rd March - when the Chancellor will set out the next phase of the UK’s economic plan to tackle the virus - contractors are likely to know where they stand soon. 


Qdos provides a range of leading IR35 solutions for contractors, recruitment agencies and hiring organisations that ensure for the successful and compliant implementation of changes to the off-payroll working rules.

By:Benedict Smith

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