The Off-Payroll Tax took another step closer to a 2021 private sector implementation yesterday after the measures were passed through the Finance Bill’s Committee Stage, despite significant opposition to the legislation.
The legislation’s creation of ‘zero-rights employment’ and the urgent requirement for Government to take a more holistic approach to taxation of the self-employed were among several concerns raised by MPs during the Finance Bill Committee meeting.
Nonetheless, the measures were added to the 2019-21 Finance Bill and will now be considered in the Report Stage, which provides the last opportunity for changes to be made to prevent a private sector extension of the draconian legislation.
What does this mean for the Off-Payroll Tax?
Despite strong opposition to the Off-Payroll Tax from numerous MPs, the passing of the legislation through Committee Stage was expected due to the numeric advantage held by the Conservative party. Crucially, the Bill now moves through to the Report Stage. With this representing the last chance for MPs to affect change, it seems likely that any amendments to the Off-Payroll legislation will be tabled at this juncture.
After the recent ‘amendment of the law’ resolution tabled by David Davis MP failed, there is no scope for MPs to make changes to any existing primary legislation. This includes the measures currently in effect in the public sector, which were enacted in April 2017, meaning any suspension or repeal of the public sector reform is out of scope. However, amendments to new legislation introduced in the Finance Bill remain a possibility. This is an area that has been comprehensively explored by ContractorCalculator CEO Dave Chaplin:
“The Stop the Off-Payroll Tax campaign has spent a significant amount of time considering potential amendments and getting them drafted by lawyers. We’ve made these amendments available to all parties to consider, and they are backed up with solid research and references.
“We’ve also tried to suggest ones that actually have a realistic probability of success and which will make the reforms fairer for all parties. Of course, we would still like a complete delay or cancellation, but in light of recent events, we have also tabled some ideas that might provide a compromise.”
‘Use time wisely’: Government urged to capitalise on Off-Payroll delay
The measures were passed amid heated debate, with numerous MPs citing Government’s failure to address the legislation’s inherent unfairness. Shadow Exchequer Secretary to the Treasury Wes Streeting noted that the mildly preferable tax treatment that limited company contractors experience reflects the fact that they don’t receive the protections and rights enjoyed by employees.
Alluding to the 12-month Off-Payroll delay afforded by the coronavirus pandemic, Streeting argued: “We would impress upon the Government that they use this additional time to provide an additional review and learn from the mistakes of the public sector rollout, and of the anxieties that exist about the private sector rollout.
“We would urge the Government to use this time wisely. We believe it is necessary for Government to take a broader approach to modernise the law around employment status and look at how it relates with tax status.”
This sentiment was echoed by Stephen Flynn MP. Having been inundated with correspondence from contractors outraged by the Off-Payroll Tax, the MP for Aberdeen South argued: “IR35 is creating a new group of zero-hours employees paying full taxation but without the associated employment rights. What is just and fair about that?”
Representing a high number of contractors in the oil and gas industry blighted by the coronavirus pandemic, Flynn described the Off-Payroll Tax as “a slap in the face to those workers having to deal with the most difficult of challenges”.
Government slammed for overlooking Lords report
Elsewhere, Streeting would cite the recent House of Lords Finance Bill Sub-Committee report on Off-Payroll, which called for an overhaul of the fundamentally flawed legislation, as evidence that further consideration is urgently required.
Government’s inaction following the Lords report, published two months ago, was also a point of contention for Flynn, who contested Financial Secretary to the Treasury Jesse Norman’s assertion that Government had carefully considered the issues surrounding the Off-Payroll Tax, arguing: “Who Government has not listened closely to is the House of Lords, who have been clear that Government needs to pause this policy and go back to the drawing board.”
“We have yet to respond to the Lords committee and we will do so in due course,” responded Norman, who added that Government is also in the process of commissioning external research into the effect of the public sector reform.
These promises will be of little consolation to contractors, many of whom will question why Government is progressing legislation through the House of Commons before vital research is completed and Off-Payroll’s full effects are realised.
Report Stage rendered ‘last chance saloon’ for Off-Payroll change
The chances of Government implementing change based on commissioned research appear particularly slim when considering the arguments put forward by the Financial Secretary to the Treasury.
Norman’s insistence that clients are better placed than contractors to assess employment status for tax, and that the public sector reform hasn’t impeded labour market flexibility, is ignorant to the many valid and evidenced arguments put forward by contracting stakeholders throughout the consultation phase.
“Contractors will be justifiably sceptical of any promises made by Government, considering the manner in which it has conducted itself regarding the Off-Payroll Tax,” says Chaplin. “As a result, it’s all to play for in the Report Stage, which represents the last chance saloon for MPs to prevent the rollout of legislation that threatens the future of flexible working in the UK.”