In the wake of a damning House of Lords report on IR35 and off-payroll rules starting next April, the government has responded this week with commitments for enhanced education and support for businesses from HM Revenue & Customs and to explore improvements to the tool used to determine a contractor’s employment status.

In the response, the government has also committed to making new independent research into the long-term effects of the similar IR35 reforms imposed on the public sector in 2017 available before the private sector changes take effect next year. The new research is being commissioned, the government says. “The government will give careful consideration to the results,” the response stated.

At the same time, whilst not revealing the results publicly, the government says that previous research into the impact of new off-payroll rules on the public sector found that there was “no significant disruption to the sector or its use of contingent labour” as a result. 

The Check Employment Status for Test (CEST) tool, which has come under fire from the House of Lords report as well as much of the contractor industry, was defended in the government response. However, HMRC “are actively considering what more can be done to support customers; for example, through in-toll updates or guidance changes”, the response said. 

“HMRC are also exploring a number of other changes to improve the usability of the service. Where possible, HMRC plan to engage stakeholders actively on any changes.”

The eight-page government response drew heated comments from two of the most vocal critics of the IR35 reforms. Dave Chaplin, CEO of ContractorCalculator, said the government was “just paying lip service to the fundamental flaws” of the reforms pointed out in the Lords’ report. It “gives light promises that HMRC will work to help businesses to prepare. Don’t hold your breath”, he said.

With regard to the government’s defence of CEST, Chaplin said it was “staggering” that they “continue to spout out the same debunked messages” that the tool had been robustly tested. “Everyone knows… that they do not hold any detailed evidence to prove their claims,” he said.

Seb Maley, CEO of IR35 specialist Qdos, was similarly frustrated with the government’s response on CEST: “I find it incredible, but unsurprising, that the government refuses to acknowledge CEST’s failings. Time after time HMRC’s IR35 tool has been exposed as unreliable and incapable of assessing tax status accurately but still, the government claims that it’s fit-for-purpose and up to the job. In reality, it isn’t.”

Maley said the government had “buried its head in the sand” over the reforms.

Editor’s note: For in-depth insight on IR35, watch out for a special Recruiter announcement coming soon.

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