Small businesses will feel the effects of the COVID-19 pandemic for considerably longer than a year, a Conservative member of Parliament said as he argued for IR35 reforms to be delayed until 2023.
“In April next year self-employed contractors will be hit with unnecessary costs, confusion, and uncertainty, just as many of them are getting back on their feet after the coronavirus has wreaked havoc across the economy. It is the self-employed and small businesses that make up the beating heart of our economy, and they will power the recovery of our economy out of this crisis,” David Davis said as MPs debated the government’s approach to the delayed finance bill on May 19.
The House of Commons debate took place as Chancellor of the Exchequer Rishi Sunak told the House of Lords Economic Affairs Committee that Britain is likely to face “a severe recession, the likes of which we haven’t seen.” Government figures released earlier on May 19 had shown a substantial increase in unemployment benefit claims.
Experimental data covering claims to job seeker’s allowance and universal credit showed a 69.1 percent increase in the number of claims between March and April, taking the level to over 2 million, according to a labor market overview published by the Office for National Statistics.
The government has proposed new clauses to the bill, amending the IR35 rules for services provided through intermediaries. HM Treasury published explanatory notes on the clauses, ahead of the bill’s examination by a public bill committee on dates to be announced.
A ways and means motion, authorizing the government to introduce provisions amending the off-payroll working legislation in the Income Tax (Earnings and Pensions) Act 2003 with effect from April 2021 for engagements in the private sector, was approved without a vote. Davis proposed an amendment seeking to delay the reforms until 2023. Although the amendment was not selected for debate, Financial Secretary to the Treasury Jesse Norman sought to explain the government’s response to it.
To help businesses and individuals deal with the economic impacts of the coronavirus, the government had announced in March that the reform would be delayed by one year from April 2020 to April 2021. Davis’s amendment would delay the reform by a further two years to April 2023, but it is “hard to see any genuine rationale for this further delay,” Norman said. “By delaying until 2021, the government has already ensured that businesses and contractors will not need to make final preparations for this reform until next year,” he added.
Further delay would “extend the disparity between the private and public sectors” and would come at “a significant fiscal cost that other taxpayers up and down the country would have to make up,” Norman argued.
The government will use the additional time given by the one-year delay to commission “further independent and robust research into the long-term effects of the 2017 reform on the public sector,” Norman said. “The government will give careful consideration to the results of that further research, and thereafter [it] will continue to monitor the effect of the reform on the labor markets . . . including by commissioning independent research six months after [the reform] has taken effect.”
HM Revenue & Customs is helping businesses get their employment status determinations right by ensuring that they have access to a wide program of education and support, Norman said, adding that the post-implementation research will evaluate whether status decisions are “being made properly.”
Davis reminded MPs that the Lords committee’s inquiry into the proposed reforms found “a system riddled with unfairness and unintended consequences.” Treasury has “neither the time nor the capacity for a wholesale review” of the IR35 regime right now, he said. “Therefore, the only sensible course of action is to pause these reforms and take the time to properly review the impact they will have on the self-employed,” Davis concluded.