The House of Lords Economic Affairs Committee’s Finance Bill Sub-Committee has published a report on the Social Security Contributions (Intermediaries) (Miscellaneous Amendments) Regulations 2020.
This statutory instrument extends changes to income taxation rules for employment intermediaries under the off-payroll working rules to National Insurance Contributions (NICs). The income tax provisions are in the Finance Act 2020. But the relevant provisions included an unintended widening of the definition of an intermediary. The committee criticised the Government that despite having identified this problem before the statutory instrument (SI) was laid, it proceeded with and has not withdrawn the SI.
The report was published on Friday 18 December after the committee held a session with Tax Minister Jesse Norman earlier this month (7 December).
The committee concluded:
- The Government has seriously neglected a basic constitutional principle in making this statutory instrument: it should not make legislation which it knows in advance does not reflect its policy intent. We can find no precedent for this breach of good government.
- The Government would have been better advised to withdraw the statutory instrument to correct the problem. This could have been done by immediately withdrawing and replacing it with a statutory instrument with the relevant paragraph removed.
- Making the legislation now exacerbates uncertainty by requiring clarification even before it takes effect.
In broader comments, the report states that this matter strengthens the view set out in its earlier report on off-payroll working that the Government should consider the rise of self-employment in its wider context, and not just as a question of tax compliance. “We hope that, as the new rules are implemented, the Government takes the opportunity to consider this broader picture,” the report says.
The Government will shortly be publishing both the results of its independent research into the effects of the 2017 public sector off-payroll working rules and its revised policy costings. The committee’s report says the Government should also ensure that HMRC takes this new information into account when supporting business in implementing the new rules.
Evidence session – 7 December
During the evidence session with the Lords committee, Tax Minister Jesse Norman said the SI relates to an attempt to prevent an opportunity for avoidance of the off-payroll working rules. The law is not defective, it merely does not reflect the policy intent, in so far as it widens the definition of an intermediary which went beyond the intended scope of the policy, explained the minister. The Government’s fix is to change the primary legislation and then change the implementing regulations by April 2021, he said. Therefore, the Government will take legislation, having consulted, to put it right in the Finance Bill and, after that legislation, get in force a new SI in time for the implementation date of April.
Norman said the SI is far broader than the specific issue peers are concerned about. There is time for government to ‘fix’ the problem because it will not come into force until April next year. He explained that there is no withdrawal process as such for secondary legislation; the Government would have to revoke the statutory instrument and make and lay a new one. It would then have to make and lay further new regulations in the spring, ‘which would completely unhorse the process of legislative development that we have put forward and are taking forward now’.
Chris Simons, Deputy Director, Off-Payroll Working Programme, HMRC, said the tax authority consulted with IR35 Forum and other stakeholders, about the different solutions HMRC could have to the problem to make sure that the legislation operates to the policy intent. Norman added that ‘we have put a Written Ministerial Statement into the public domain. I think there is very widespread understanding among the different groups that comprise different segments of the wider community that this is the case’.
Lord Butler of Brockwell asked what Norman’s objection is to annulling the present SI, telling taxpayers that a revised one will be coming that will be different only in respect of that paragraph, ‘and, if I may say so, treating Parliament properly’. Norman explained that approach would entirely disrupt the process of change that is already in place, whatever ‘eirenic ‘statements might be put out alongside it. And it would require a considerable amount of further parliamentary time to make and lay the legislation all over again. It would also be extremely disruptive more widely to other aspects of the Government’s legislative programme that may require parliamentary time.
Baroness Bowles of Berkhamsted asked why the Government did not just do a statutory instrument of the 12 and three-quarter pages and leave out the bit that it knew was wrong. Simmons replied: “Overall, looking at it in the round—how to give people certainty, and to give consistency with the primary legislation—the best approach felt like continuing with the SI as a whole.”
Lord Rowe-Beddoe asked about lessons to be learned. Norman said there are obviously small improvements we could make, and possibly different sources of advice and information on which we could draw, but ‘I do not think that that overall approach is one that we could readily better’.
The Chair Lord Bridges of Headley said he found the situation ‘unacceptable’, which Norman said was a ‘complete overreaction’. But Norman said no one has any appetite for this episode to be repeated.
Lord Forsyth of Drumlean suggested that this episode shows the need for a more holistic approach that not only deals with tax and employment but considers people’s rights across different forms of employment. The peer took the opportunity to raise the committee’s general view of the need to completely rethink the legislation and its call for the Government to keep its promise to implement the recommendations of the Taylor review. Norman replied that the new IR35 policy is a ‘good one’.
The full evidence session can be found on this link.