This week the Economic Affairs' Finance Bill Sub-Committee wrote to the government setting out its main findings on the impact of the extension of the off-payroll working reforms to the private sector in April 2021 - more commonly referred to as "IR35".

The findings included the following recommendations:
 
• CEST tool.

The clear limits of the CEST tool should be acknowledged by HMRC. A 20% "undetermined" rate means a significant number of people need additional support to identify their status for the purpose of the off-payroll working rules. The tool should be modified to properly reflect the test of mutuality of obligation.

• Umbrella companies.

The extension of the off-payroll working rules to the private sector has resulted in an increased use of umbrella companies. While many perform a useful function, there is an increasing risk that some individuals, particularly those on low incomes, will become involved in rogue umbrella companies which are associated with tax avoidance. This often means that workers receive 20% less pay, as the arrangement makes them responsible for their employer's National Insurance contributions. While welcoming the recent call for evidence, the Sub-Committee feels that the government has been slow to act against the harm caused by non-compliant umbrella companies. It is concerned that the off-payroll working rules are encouraging the insertion of unnecessary intermediaries into the supply chain, adding to costs and opportunities for rogue operators. It recommends that the government commits to a date for bringing forward legislation to create the proposed single enforcement body to regulate umbrella companies.

• Employment status. 

The government must take a more coherent approach to the issue of employment status, which considers both tax and employment rights. As the Sub-Committee previously pointed out in its 2020 report, it is unfair that individuals are treated as employees for tax purposes but without the rights which are normally associated with employment. The Sub-Committee believes that in taking forward the off-payroll working reforms, the government has focused too narrowly on tax issues, and not enough on the wider issue of fairness. and employment law status. To address this, the government should press ahead with implementing the proposals set out in the Taylor Review. There is now even greater urgency in defining employment status for both tax and employment rights purposes, not least as in recent weeks it has been apparent yet again that the Tax Tribunals are applying different tests to the Employment Tribunals.

The Sub-Committee has requested a response from the government by 9 March 2022 and time will tell if, finally, this is the beginning of a much needed merger of tax and employment law...