IR35 – Up for Discussion

The government’s been as good as its word and offered up IR35 for sacrifice discussion. The 11-page document is by no means something that genuine contractors should fear.

For HMRC, the current legislation is not working. The new discussion seeks to create a framework with the input of stakeholders to find out:

  • why the current legislation isn’t working;
  • how the rules can help better IR35’s implementation;
  • what the taxman’s team of auditors need to do next to ensure they’re targeting (and punishing) only those who deserve it.

Okay, hands up. That’s the way I’m reading the document’s scope.

One can only hope that those stakeholders the government listens to share the same outlook. Here’s a bit more translation, without the big words.

The Rationale

The reason the government has launched the IR35 discussion document is because they don’t believe they’re catching ‘disguised employees’. In other words, they’re not getting as much tax from those with a higher earning potential as they’d like.

The document also states that it’s just not fair on an employee if someone doing the same job, yet has gone to the time and effort to create a branded limited company, should retain more of their income.

Yes, they’re going for the sympathy vote, already, trying to whip up the support of employees who may feel wronged. The government shows a worrying lack of comprehension of the sizeable task of creating and operating a limited company – or PSC – in the first instance.

It’s almost as if the government wants everyone back working for the man, despite the lack of flexibility this will give the UK workforce. Not to mention that with more people back on the shop floor, the need for unions will only become stronger. In so many ways, you can see history repeating itself before the cornerstone of the new Tory government has even been laid.

The Options

The government refutes the the allegations that the only option is to ‘abolish’ IR35. They believe that reform can help ‘protect the Exchequer’ from disguised employees claiming tax relief, when they really ought not.

What they are looking at doing is ‘levelling the playing field’. In other words, someone who would otherwise be an employee if it wasn’t for the fact that they were contracting though a PSC would be inside IR35.

Call me stupid, but isn’t that what the legislation has been trying to uphold since its inception in 2000?

The Problem

The government is caught between a rock and a hard place. They need to categorically define employment. They need to say:

  1. if [worker] meets these conditions, then they’re employed;
  2. if, on the other hand, they resemble this, then they’re self-employed.

The problem is that to do that, many of the advantages they offer to entice big businesses to make London their home would be in conflict. Many of the expenses MPs claim – for surely they would be employees, too – would become moot.

So unless MPs are prepared to take a huge, massive pay cut (expenses, etc.), then the reforms to IR35 will be minimal.

Going back to what I said, genuine contractors shouldn’t be afraid, I stand by it. But only because I put the greed of MPs before common sense. If the discussion should somehow reflect the truth of the House of Commons, then all limited company contractors should be looking for a second and third client, to prove they’re not the employee of one single client.

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