Recommendations & Conclusions
7 items
3
Recommendation
Second Report - Lessons from implementi…
Accepted
HMRC is not doing enough to understand the impact of the reforms on workers and labour markets. The complexity of the rules, and the perceived risk to hiring organisations of failing to comply with them, may lead to changes in behaviour by both workers and hirers. In some cases, contractors …
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HMRC is not doing enough to understand the impact of the reforms on workers and labour markets. The complexity of the rules, and the perceived risk to hiring organisations of failing to comply with them, may lead to changes in behaviour by both workers and hirers. In some cases, contractors have reported that their last clients had stopped all use of PSCs, while some contractors have increased their rates or avoided work if it is within scope of the IR35 rules. Such behavioural impacts 6 Lessons from implementing IR35 reforms could have knock-on consequences for workers and labour markets, such as loss of work or ability to work flexibly. HMRC has not carried out research into these types of wider impacts, and it is not convinced by evidence provided by others even where this indicates there may be significant issues. HMRC is also too dismissive where a significant minority of people and businesses report being adversely affected. Recommendation: HMRC should conduct and publish specific research into the impacts of the IR35 reforms on contractors and labour markets, to check it is being applied as intended and not adversely affecting employment opportunities.
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Government response AI summary
The government will conduct and publish specific research into the impacts of the IR35 reforms on contractors and labour markets, with a target implementation date of December 2023. They disagree with the committee's conclusion but agree with the recommendation.
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HM Treasury
4
Recommendation
Second Report - Lessons from implementi…
Accepted
We are not confident that HMRC works proactively to establish whether any sectors have been affected disproportionately by the reforms and why. Issues in UK supply chains have been widely reported in recent months, for example in fuel and groceries. It is unclear to what extent the IR35 changes may …
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We are not confident that HMRC works proactively to establish whether any sectors have been affected disproportionately by the reforms and why. Issues in UK supply chains have been widely reported in recent months, for example in fuel and groceries. It is unclear to what extent the IR35 changes may have contributed to these by affecting hiring practices or decisions by contractors in key parts of the workforce. Particular concerns around difficulties in implementing the rules have also been raised by contractors in the broadcasting and IT sectors, and these issues may be compounded in areas that have seen changes to more flexible and ad-hoc working practices in recent years. We do not have confidence that HMRC is identifying which sectors may be disproportionately affected, nor that it is working proactively with affected sectors to understand what issues they are facing and how these might be addressed. Recommendation: HMRC should proactively identify and work with sectors that have been particularly affected to understand the challenges, establish how to address them and make it easier to comply. HMRC should write to us with an update in six months with the outcome of this public engagement.
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Government response AI summary
HMRC agrees to proactively identify and work with sectors that have been particularly affected by the reforms, and will develop and implement a stakeholder engagement strategy to develop its understanding of the specific challenges faced by particular sectors, with an update due in six months.
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HM Treasury
8
Conclusion
Second Report - Lessons from implementi…
Accepted
The absence of a clear definition of self-employment, and limited access to relevant personal information for each contractor, can make it challenging for hiring organisations to make status determinations confidently.13 Hiring organisations can face significant financial consequences if they incorrectly assess someone as self-employed, and this risk may affect their …
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The absence of a clear definition of self-employment, and limited access to relevant personal information for each contractor, can make it challenging for hiring organisations to make status determinations confidently.13 Hiring organisations can face significant financial consequences if they incorrectly assess someone as self-employed, and this risk may affect their determinations.14
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Government response AI summary
The government agrees with the observation, stating HMRC has already implemented processes to reduce instances of double taxation and is actively seeking required information from client organizations. It has also established a working group to consider legislative solutions, and will notify the committee of a …
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HM Treasury
10
Conclusion
Second Report - Lessons from implementi…
Accepted
We asked HMRC to what extent it considered that hiring organisations were treating workers unfairly, for example by using ‘blanket assessments’ instead of assessing workers on a case-by-case basis. HMRC told us it had seen limited evidence of blanket assessments, and that around 500 workers had contacted them because they …
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We asked HMRC to what extent it considered that hiring organisations were treating workers unfairly, for example by using ‘blanket assessments’ instead of assessing workers on a case-by-case basis. HMRC told us it had seen limited evidence of blanket assessments, and that around 500 workers had contacted them because they believe they have not been treated correctly.16 HMRC considers these reports when assessing risk of error and non- compliance by hiring organisation, and told us it would be unable to tell us the outcome 7 Q13 8 Q28; C&AG’s report, para 10 9 C&AG’s report, para 11 10 Qq 28, 31 11 Qq 14, 16, 18–19 12 Q18 13 C&AG’s Report, para 3.8 14 C&AG’s Report, para 3.4 15 Q22; C&AG’s Report, para 3.6 16 Qq 40, 43 10 Lessons from implementing IR35 reforms of these cases until it has completed its follow-up work.17 HMRC also explained that an individual raising concerns may have to wait months or years for a resolution depending on the complexity of the case and the cooperation of the parties involved.18 Structural problems with the way the rules work
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Government response AI summary
HMRC states that it already provides additional support to address challenges faced by specific sectors through factsheets and guidance, and it is committed to continuing to support customers with compliance at a sector-specific level.
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HM Treasury
15
Recommendation
Second Report - Lessons from implementi…
Accepted
The complexity of the rules, and the perceived risk to hiring organisations of failing to comply with them, could lead to changes in behaviour by both workers and hirers. For example, while firms must assess each role individually and not make blanket assessments, they are perfectly within their rights to …
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The complexity of the rules, and the perceived risk to hiring organisations of failing to comply with them, could lead to changes in behaviour by both workers and hirers. For example, while firms must assess each role individually and not make blanket assessments, they are perfectly within their rights to mitigate risks by reducing their use of off-payroll workers in the first place.28 These forms of behavioural impacts could have knock-on consequences for workers and labour markets, such as loss of work or ability to work flexibly.29
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Government response AI summary
The government agrees to conduct and publish specific research into the impacts of the IR35 reforms on contractors and labour markets, with a target implementation date of December 2023.
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HM Treasury
17
Recommendation
Second Report - Lessons from implementi…
Accepted
HMRC has not carried out research into these types of wider impacts from the perspective of workers, and is not convinced by evidence provided by others even where this indicates there may be significant issues.33 In its own research, HMRC has also presented the reforms as a success despite consistently …
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HMRC has not carried out research into these types of wider impacts from the perspective of workers, and is not convinced by evidence provided by others even where this indicates there may be significant issues.33 In its own research, HMRC has also presented the reforms as a success despite consistently finding that significant minorities of people and businesses have been adversely affected. For example, in HMRC’s latest research into the impacts of the reforms impacts on public bodies, 19% of ‘sites’ (a single location of an organisation that administers its own payroll) and 34% of ‘central bodies’ (bodies providing payroll services for multiple locations or organisations) reported that they had found it more difficult to fill contractor vacancies since April 2017.34 When reporting its findings, HMRC focuses on the experience of the majority rather than the problems faced by the large minority.35 Understanding which sectors have been particularly affected
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Government response AI summary
The government will conduct and publish specific research into the impacts of the IR35 reforms on contractors and labour markets, with a target implementation date of December 2023. They disagree with the committee's conclusion but agree with the recommendation.
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HM Treasury
19
Recommendation
Second Report - Lessons from implementi…
Accepted
It is not yet clear to what extent the IR35 changes may have contributed to these issues by affecting hiring practices and decisions made by contractors in key parts of the workforce.38 HMRC believes that the reforms are unlikely to have had a material impact on the flexibility of the …
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It is not yet clear to what extent the IR35 changes may have contributed to these issues by affecting hiring practices and decisions made by contractors in key parts of the workforce.38 HMRC believes that the reforms are unlikely to have had a material impact on the flexibility of the labour market but acknowledges that it does not yet have evidence on this, and its research has not examined whether there are particular issues in particular sectors.39 Stakeholders have reported that HMRC could do more to work with different sectors to understand the challenges they face, help develop more specific guidance and ensure that its CEST tool works equally well regardless of sector and role.40 HMRC told us of the ways it engages with stakeholders to monitor developments, particularly through its IR35 Forum. But there remain questions for how well HMRC can keep up with rapidly emerging and changing sectors, particularly in areas that have seen changes to more flexible and ad-hoc working practices in recent years.41 Assessing total costs and benefits of the reforms
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Government response AI summary
HMRC will proactively identify and work with sectors that have been particularly affected by the reforms to understand the challenges and how to address them, and will develop and implement a stakeholder engagement strategy. HMRC will provide the committee with an update in six months.
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HM Treasury