The House of Lords Finance Bill sub-committee has recently launched a new inquiry into a reform of the IR35 in the Private Sector, specifically implementing the new off-payroll rules.
In this blog, we’re looking into this new inquiry. We will be exploring what this IR35 inquiry means, what happened with the previous inquiry, and what The House of Lords Finance Bill sub-committee hope the outcome will be.
What Is an IR35?
An IR35 is the Government’s name for describing two sets of tax legislation that were designed to combat tax avoidance by both employees and the employers who hire them. The HMCR can open an IR35 whenever they believe someone isn’t paying the correct taxes or due to indirect reasons such as a result of an investigation. There are eight stages of an HMRC enquiry:
- Initial IR35 investigation notification
- Initial IR35 investigation response
- End client contract
- Initial IR35 status decision
- Appealing the initial IR35 status decision
- Escalation to tax tribunals
- Escalation to higher courts
- The final IR35 status decision
If you have any questions, please don’t hesitate to get in touch with our team; we are more than happy to provide our services and help you understand IR35 better.
What is the New Inquiry?
The House of Lords Finance Bill sub-committee has launched a new inquiry into IR35. This inquiry will investigate the implementation of the off-pay rules in the private sector and how these rules are working in practice.
Why Was the Inquiry Launched?
The inquiry was launched as a follow-up to a previous investigation in April 2020, but the committee was not satisfied with the results. So, what are they asking this time?
- Has the new extension of the off-payroll working rules to the private sector made the process of hiring people with the proper skills and expertise more difficult for engagers such as the business that the contractor works for? And to what extent has the introduction of the extension contributed to vacant jobs?
- How successful do you consider it for the engagers and their advisers who use the CEST (Check Employment for Tax Status) tool to look into employment status? Are you confident in the results? And if not, can you suggest any further improvements that would increase your confidence?
- Are you aware of any changes that engagers have had to make to apply the off-payroll rules to contractors concerning systems, personnel, and training? In your experience, to what extent do you think that compliance costs have increased due to the changes?
- In your opinion, how strong is the support for engagers, contractors, and their advisers from the HMRC regarding the implementation of the new rules? Do you believe there is any further or different type of assistance needed?
- How has the introduction of the new rules generated disputes between engagers and contractors regarding the status of contractors vis à vis the rules? Has the resolution of these disputes been successful?
- Have there been any behavioural effects regarding the arrangements adopted in hiring contractors due to introducing the new rules in the private sector?
- The Government has proposed a new employment body that can enforce employment rights such as those engaged by agencies and umbrella companies. However, regarding lower-paid workers, how effective and fair do you think this body will be?
- What do you think the success rate will be regarding the draft Finance Bill proposals for earlier publication of information regarding promoters and avoidance schemes protecting individuals from being drawn into such schemes?
What Happened with the Previous IR35 Inquiry?
As mentioned, the new inquiry follows a previous inquiry into the IR35 in April 2020 in which the sub-committee published a report titled “Off-payroll working: treating people fairly”. This report was an analysis and criticism of the Government’s decision to enforce IR35 reform. This decision saw medium and large businesses becoming responsible for deciding and regulating the IR35 status of contractors, which led to controversy.
The House of Lords Finance Bill sub-committee are asking for responses with a deadline of 15th November 2021.
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