Why is the IR35 review being criticised already?

Have the Conservatives honoured their IR35 promise?

By announcing that an IR35 review has launched, the Government has delivered on the Chancellor’s pre-election promise to examine whether the proposed reforms to the IR35 legislation are “right to take forward.” 

However, the reaction to the opening of the review was met immediately with criticism, disappointment and, in many cases, anger. 

In this article, we’ll explore why the Government’s eagerly anticipated IR35 review falls flat...

U-turn or delay both seem unlikely

Upon the news that a Tory Government would review IR35 reform, Qdos was quick to stress how important it is that any potential consultation is genuine. A review mustn’t be held simply to win the votes of contractors, many of whom feel betrayed by the Conservative Party following the introduction of public sector reform in 2017. 

The problem is the IR35 review details plans to consult with industry experts and other interested parties to “ensure the smooth implementation” of April’s changes. The document is worded in a way that suggests the Government intends to roll out changes on 6th April regardless of any findings. 

There is still perhaps a chance of a delay or even hope of a last-minute U-turn, but Financial Secretary to the Treasury, Jesse Norman, explains the reason for the review as if the changes are set in stone. He stated: “The purpose of this consultation is to make sure that the implementation of these changes in April is as smooth as possible.”

With this in mind, our advice to contractors, agencies and medium and large private sector firms is to work off the premise that reform will be introduced.

Questionable timescales

While the Government will at least conclude the IR35 review by mid-February, the worry is that this is only six weeks or so before the arrival of changes. Assuming that CEST, which is due to be “evaluated” is found to be unreliable (a point that Qdos has made since the tool’s introduction in 2017), what is the Government’s contingency plan? This applies to any so-called ‘improvements’ that the review decides must be made to the final legislation. 

The timeframes are tight and many private sector companies have invested considerable resource in preparing for reform based on the information in the draft legislation. As our CEO, Seb Maley, explained to Accountancy Age, “given the legislation applies to payments made on or after 6th April, which typically covers work carried out in March, there is very little time for the Government to make any improvements once the review has concluded in February.”

A clear lack of understanding

The details of the IR35 review claim that the off-payroll working rules do not impact genuine contractors. This is something we know not to be true. To this day in the public sector, blanket IR35 determinations force genuine contractors - whose working engagement does not reflect employment - inside IR35.

This was a point our CEO, Seb Maley, highlighted to the FT Adviser:“That HMRC is still under the illusion that IR35 reform only affects those ‘working like employees’ also shows just how out of touch the Government is.”

Furthermore, the Government states that those “who do not comply with the rules pay significantly less income tax and NICs than an equivalent employee.” This isn’t accurate either. After all, the majority of tax paid on behalf of an employee is employers’ NI - not income tax or employee NIC. 

Preparations must continue regardless

Taking these points into account, it’s important that contractors, recruitment agencies and private sector businesses affected continue their preparations. While an IR35 review is certainly a sign of progress, it is only a review. It does not mean incoming changes will be delayed or scrapped, regardless of the fact that halting reform altogether would be the best action to take. 

You can read the details of the IR35 review here. In representing the interests of contractors and the companies placing and engaging independent workers, Qdos will make itself available to participate in the IR35 review and will continue to recommend that the Government reconsiders its position.