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The ground is shifting in the battle to keep or kill IR35

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RSS 01 September 2015
The IR35 argument rages on, irrespective of the discussion document up for commentary from industry stakeholders. "IR35 is dead", we hear. "The tax man cannot cope with its scope", others cry. But will the discussion really lead to the abolition of Intermediaries Legislation? And, what's the alternative?

Industry commentators have decried IR35 since the government introduced the legislation in 2000. Taking a last minute U-turn, making the contractor responsible for its implementation rather than the client, was the wrong decision. And on two counts.

First, the vast majority of independent professionals who set out to make their own mark on the world are not accountants. The intricacies of the legislation are so intricate and open to misinterpretation, it beggars belief.

It was wrong of HMRC to expect, say, an IT contractor to understand the legislation's machinations and consequences of falling 'outside' IR35. Yet pressure from corporations (NHS, government departments, etc.) who would come to rely on the flexibility contracting brings wanted no responsibility for ensuring a contractor was in- or outside.

The fact is, it's not a level playing field

Secondly, the legislation itself is punitive. Despite contractors and freelancers bringing the benefit of their expertise to the table and enabling businesses to engage those skills on an ad hoc basis, HMRC wants everyone on PAYE.

They see independent professionals on the same playing field as employees and expect them to pay the same dues. And that's the real problem.

The simple fact is, anyone who ventures out on their own is making a commitment. Not only do they want to elevate their lifestyle, they want to add a dimension to the economy that it would otherwise struggle to encapsulate.

Flexibility and expertise when businesses need them alleviates a problem for companies looking to expand. Such companies are fearful of employing someone full time for a task that is short term in nature.

Sure, employing a specialist will provide a short-term fix. But what about when the task is complete?

Does a contractor's commitment, drive and ambition deserve special status?

Yes, it does. Contractors know it. Engagers know it, otherwise they wouldn't pay the higher fee that most contractors charge.

And what if you asked most employees whether they'd swap the ease of clocking on and off for slightly higher earnings, yet the incumbent accounts, marketing and uncertainty of long term engagement?

The vast majority would say, "No. Thank. You."

These are only a few of the frustrations that grind away beneath the surface, like tectonic plates shifting on the Earth's mantle. Exert enough pressure or lateral movement and you'll inevitably show up on the Richter Scale sooner or later.

In Contractor Calculator's September newsletter, we have the experts calling for the government to abolish IR35. The solution proffered? Use the discussion document to put the ball back in the court of the client to administer IR35.

A sweeping brush is not what the independent workforce needs

Will the larger type of business that typically engages contractors hundreds at a time want the hassle of vetting contractors' status? Even though they may have a theoretical capacity to do so, it's unlikely.

Thinking NHS, how will budget cuts most trusts face cope with:

  • the creation a whole new payroll system;
  • checking a contractor's IR35 status;
  • then ensuring they pay them accordingly?

It won't.

Such businesses will adopt a broad policy, unsure of what's required and tag contractors onto their PAYE systems.

Contractors will lose out, stare 'financial ruin' in the face and return to full time employment. The economy will lose out, as the contractors upon whom these businesses relied will no longer be available on an ad hoc basis.

See what I mean about an earthquake? Can't you feel it in the ground beneath your feet?

The plates are shifting and, unless the government learns to appreciate that self-employed people are not the same as employees, we're heading for an aftershock or two. And soon. I wouldn't like to be the one on the fault line when the two worlds collide.

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