Lessons from implementing IR35 reforms

Public Accounts Committee Closed Inquiry
Opened: 12 Jan 2022 Closed: 2 Sep 2022 Parliament page
Lessons from implementing IR35 reforms “Off-payroll working” - known as ‘IR35’ - tax rules can apply if a worker or “contractor” provides their services to the client through their own limited company or another type of intermediary. The rules aim to make sure that workers who would be classed as … Read more
12 Recommendations
10 Conclusions
1 Report
1 Oral session
1 Letter
1 Event
Activity timeline 5 events
2 Sep
2022
Report published
25 May
2022
Report published
22 Feb
2022
Correspondence
21 Feb
2022
Oral evidence
21 Feb
2022
Formal meeting (oral evidence session) · The Wilson Room, Portcullis House
Oral evidence sessions 1 session
21 Feb 2022
View on parliament.uk
Lessons from implementing IR35 reforms
Jim Harra · HMRC Nicole Newbury · HMRC Pete Downing · HM Revenue and Customs
Title HC No. Published Items Response
Second Report - Lessons from implementing IR35 reforms HC 60 25 May 2022 22 Responded
Recommendations & Conclusions
22 results
2 Recommendation Not Addressed
Second Report - Lessons from imple…
We are concerned that it is too difficult for workers to challenge incorrect status determinations.
We are concerned that it is too difficult for workers to challenge incorrect status determinations. 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 … Read more
Government Response
The response discusses the Office for Students (OfS) consulting the sector on its activity, improving communications with providers, and commissioning qualitative research. It does not address the recommendation about a fast and independent process for contractors to resolve disputes over status determinations.
HM Treasury
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3 Recommendation Accepted
Second Report - Lessons from imple…
HMRC is not doing enough to understand the impact of the reforms on workers and...
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 … Read more
Government Response
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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4 Recommendation Accepted
Second Report - Lessons from imple…
We are not confident that HMRC works proactively to establish whether any sectors have been...
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. … Read more
Government Response
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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5 Recommendation Accepted in Part
Second Report - Lessons from imple…
HMRC has not made a robust assessment of the additional costs of implementing the reforms.
HMRC has not made a robust assessment of the additional costs of implementing the reforms. HMRC states that the IR35 reforms increased tax revenues by increasing the number of people employed for tax purposes, but it is unclear to what … Read more
Government Response
The government agrees to produce and present to Parliament a cost-benefit analysis of the reforms, but states that, based on current data, it does not believe it will be possible to publish a full cost-benefit analysis taking account of all parties in the supply chain.
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6 Recommendation Acknowledged
Second Report - Lessons from imple…
Despite years of reforming the IR35 rules, there are still structural problems with how they...
Despite years of reforming the IR35 rules, there are still structural problems with how they work in practice. The IR35 rules do not work well with the realities Lessons from implementing IR35 reforms 7 of contracting, both in determining workers’ … Read more
Government Response
The government agrees with the committee's recommendation to review the system, but the response primarily describes existing processes for addressing tax collection issues and ongoing efforts to improve data collection and prevent double taxation, without committing to specific new actions or a timeline for the review itself.
HM Treasury
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1 Conclusion Not Addressed
Second Report - Lessons from imple…
On the basis of a report by the Comptroller and Auditor General, we took evidence...
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Revenue & Customs (HMRC) regarding the implementation of off-payroll working tax rules, known as IR35.1
Government Response
The government response acknowledges the receipt of the report and provides basic contextual information.
HM Treasury
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7 Conclusion
Second Report - Lessons from imple…
We asked HMRC what level of non-compliance it expected there to be in smaller public...
We asked HMRC what level of non-compliance it expected there to be in smaller public bodies, and whether well-resourced departments struggling to comply is a worrying sign for the reforms more generally. HMRC suggested that smaller organisations may be better … Read more
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8 Conclusion
Second Report - Lessons from imple…
The absence of a clear definition of self-employment, and limited access to relevant personal information...
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 … Read more
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9 Conclusion Acknowledged
Second Report - Lessons from imple…
Since 2021, individuals have had the statutory right to raise a dispute with their hirer...
Since 2021, individuals have had the statutory right to raise a dispute with their hirer if they disagree with their status determination, and the hiring organisation must respond formally within 45 days. If both parties continue to disagree, the worker … Read more
Government Response
The government acknowledges the conclusion and notes that there are established appeal routes for customers who disagree with tax assessments, but asserts that the reforms to the off-payroll working rules were the best way to achieve correct employment status from the start.
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10 Conclusion Accepted
Second Report - Lessons from imple…
We asked HMRC to what extent it considered that hiring organisations were treating workers unfairly,...
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, … Read more
Government Response
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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11 Recommendation Accepted in Part
Second Report - Lessons from imple…
Evidence received from stakeholders indicated that many of the challenges with IR35 stem from underlying...
Evidence received from stakeholders indicated that many of the challenges with IR35 stem from underlying issues in tax administration.19 HMRC told us that it would be simpler and more straightforward to administer the tax system if tax liabilities of employed … Read more
Government Response
HMRC has already implemented a process to reduce the circumstances where it collects tax twice and has set up a working group to consider a legislative solution to account for taxes already paid. HMRC will notify the Committee of a target implementation date as soon as this work has concluded.
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12 Conclusion Acknowledged
Second Report - Lessons from imple…
The IR35 reforms made hiring organisations responsible for determining a contractor’s tax status.21 HMRC told...
The IR35 reforms made hiring organisations responsible for determining a contractor’s tax status.21 HMRC told us it interprets IR35 as applying to individual engagements, but that courts have not always taken the same approach. In particular, recent court rulings suggest … Read more
Government Response
The government agrees with the committee's recommendation to review the system, but the response primarily describes existing processes for addressing tax collection issues and ongoing efforts to improve data collection and prevent double taxation, without committing to specific new actions or a timeline for the review itself.
HM Treasury
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13 Conclusion Acknowledged
Second Report - Lessons from imple…
The realities of contracting also mean that hiring organisations will likely not have the data...
The realities of contracting also mean that hiring organisations will likely not have the data required to identify and correct mistakes when workers have been incorrectly engaged on a self-employed basis. In particular, the hirer would not normally collect a … Read more
Government Response
The government agrees with the committee's recommendation to review the system, but the response primarily describes existing processes for addressing tax collection issues and ongoing efforts to improve data collection and prevent double taxation, without committing to specific new actions or a timeline for the review itself.
HM Treasury
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14 Recommendation Accepted in Part
Second Report - Lessons from imple…
Furthermore, the current legal framework does not let HMRC offset liabilities for non- compliance against...
Furthermore, the current legal framework does not let HMRC offset liabilities for non- compliance against any taxes already paid by workers and their PSCs.24 In law, HMRC must collect the full taxes that should originally have been paid from the … Read more
Government Response
HMRC has already implemented a process to reduce the circumstances where it collects tax twice and has set up a working group to consider a legislative solution to account for taxes already paid. HMRC will notify the Committee of a target implementation date as soon as this work has concluded.
HM Treasury
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15 Recommendation Accepted
Second Report - Lessons from imple…
The complexity of the rules, and the perceived risk to hiring organisations of failing to...
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 … Read more
Government Response
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.
HM Treasury
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16 Conclusion Acknowledged
Second Report - Lessons from imple…
Stakeholders have for some time reported that risk-averseness of hiring organisations could result in a...
Stakeholders have for some time reported that risk-averseness of hiring organisations could result in a decision to stop engaging freelance contractors.30 More recently, surveys conducted by organisations that represent or provide tax advice to contractors have found substantial numbers of … Read more
Government Response
The government agrees with the committee's recommendation to research the impacts of the IR35 reforms, and the response primarily describes existing and planned research efforts.
HM Treasury
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17 Recommendation Accepted
Second Report - Lessons from imple…
HMRC has not carried out research into these types of wider impacts from the perspective...
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 … Read more
Government Response
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.
HM Treasury
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18 Conclusion Acknowledged
Second Report - Lessons from imple…
In addition to understanding the impact of the reforms on the economy and workforce as...
In addition to understanding the impact of the reforms on the economy and workforce as a whole, it is also important to establish whether any sectors have been disproportionately affected and what additional guidance or support may be needed. For … Read more
Government Response
The government agrees with the committee's recommendation to research the impacts of the IR35 reforms, and the response primarily describes existing and planned research efforts.
HM Treasury
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19 Recommendation Accepted
Second Report - Lessons from imple…
It is not yet clear to what extent the IR35 changes may have contributed to...
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 … Read more
Government Response
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.
HM Treasury
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20 Conclusion Not Addressed
Second Report - Lessons from imple…
HMRC states that the IR35 reforms increased tax revenues by increasing the numbers of workers...
HMRC states that the IR35 reforms increased tax revenues by increasing the numbers of workers deemed to be employed for tax purpose. It has estimated that there was a net increase in tax revenue of £250 million during the first … Read more
Government Response
The government response simply repeats the committee's conclusion, stating that HMRC believes the IR35 reforms increased tax revenues.
HM Treasury
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21 Recommendation Accepted in Part
Second Report - Lessons from imple…
There is also not a complete picture of the costs of the reforms against which...
There is also not a complete picture of the costs of the reforms against which the benefits could be compared. HMRC has estimated the cost to hiring organisations, but its modelling is based on a theoretical minimum needed to comply, … Read more
Government Response
HMRC will share with the Committee and publish analysis setting out the estimated actual amount spent to comply with the reform by client organisations, alongside estimated additional receipts generated from the reform, but does not believe it will be possible to publish a full cost-benefit analysis taking account of all parties in the supply chain.
HM Treasury
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22 Recommendation Accepted in Part
Second Report - Lessons from imple…
HMRC does not have estimates for the costs incurred by organisations other than hiring bodies.
HMRC does not have estimates for the costs incurred by organisations other than hiring bodies. The government introduced the reforms because it considered it too costly for HMRC to oversee an effective compliance regime with each individual PSC.49 It is … Read more
Government Response
The government agrees to produce and present to Parliament a cost-benefit analysis of the reforms, but states that, based on current data, it does not believe it will be possible to publish a full cost-benefit analysis taking account of all parties in the supply chain.
HM Treasury
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Government Response AI assessment · 20 of 12 classified
Accepted 6
Accepted in Part 5
Acknowledged 6
Not Addressed 3
Total 12 recs + 10 conclusions
Correspondence 1 letter
22 Feb 2022 Correspondence from Jim Harra, Chief Executive and First Permanent Secretary, re Off-payroll research report publication, dated 8 February 2022
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