Inquiry into IR35 reform in the private sector is launched

The Lords sub-committee is reviewing IR35 for the second time

In response to the introduction of private sector IR35 reform on 6th April 2021, the House of Lords Bill Sub-Committee has opened an inquiry into the performance of these contentious changes so far - this follows the news of another separate review into public sector reform, enforced in 2017, which will be conducted by the National Audit Office in Winter 2022. 

The Lords IR35 inquiry has been described as a ‘follow-up’ to the Sub-Committee's report published in April 2020, titled ‘Off-payroll working: treating people fairly’. This reviewed and ultimately criticised the government’s decision to enforce IR35 reform which has since seen medium and large businesses become responsible for determining the IR35 status of contractors. 

IR35 is “riddled with problems…”

At the time, the IR35 legislation was deemed to be “riddled with problems, unfairnesses and unintended consequences” by Lord Forsyth who was then the chair of the House of Lords Economic Affairs Finance Bill Sub-Committee. The committee also called for “wholesale reform of IR35.”

Following the launch of this follow-up IR35 inquiry, new chair of the sub-committee, Lord Bridges, said the investigation is being carried out to learn “about the experiences of engagers and contractors to date.”

He also requested to “hear particularly from representative bodies about the experiences of individual contractors.”

Inquiry to examine key areas 

Like the initial inquiry, the follow-up looks to be fairly comprehensive. It calls for responses from impacted parties with regards to the overall success of the reform, the effectiveness of HMRC’s Check Employment Status for Tax (CEST) tool along with the how well the tax authority has supported contractors and businesses throughout. 

It also asks if IR35 reform has contributed to existing job vacancies in the UK. This could be  seen as a nod towards the HGV drivers crisis, which has been brought on by IR35 reform, along with the pandemic and Brexit. 

Tax avoidance schemes to face further scrutiny 

In addition to this, the inquiry asks how successful recently-published proposals to combat the proliferation of tax avoidance schemes are likely to be. As part of the draft Finance Bill released on 27th October, the government outlined several measures to clamp down on promoters of tax avoidance, which operate under the guise of umbrella companies. 

These included; the power for HMRC to seek freezing orders to stop tax avoidance schemes from dissipating or hiding their assets, rules allowing HMRC to heavily penalise UK entities that facilitate tax avoidance and naming promoters of these schemes to warn potential victims. 

Will findings lead to meaningful change?

With another IR35 inquiry underway, the question has been asked whether its findings will reverse recently enforced reform or lead to the major changes that have been called for previously by the House of Lords Bill Sub-Committee. 

Our CEO, Seb Maley, shared his view on this:

“The first Lords review was damning and exposed many of the mistakes the government has made with regards to IR35 reform in the public sector back in 2017 - from highlighting CEST’s fundamental failings to addressing the issue of zero rights employment. But ultimately, it was largely ignored by policymakers, who pushed on and introduced similar changes in the private sector earlier this year. 

“I’ve no doubt that the Lords will conduct another thorough, fair and brutally honest assessment of reform, but it remains to be seen if it will result in the changes that many contractors want, which is the reversal of reform in the private sector.”

This IR35 inquiry is open for submissions until 15th November 2021, with the Lords Finance Bill Sub-Committee inviting stakeholders to share their view. As a leading authority on IR35, Qdos will be contributing.