Will HMRC deprecate IR35? Has the shift to SDC already begun?

Fantastic article over on Contractor UK. Written by Contractor Umbrella’s MD, Lisa Keeble, it covers many contractor-centric hot potatoes. But three topics stand out as most poignant:

  1. the furore surrounding the last budget’s heralding of loss of travel and subsidence benefits for umbrella employees;
  2. the forthcoming emergency budget, public sector debt and what it all may mean for *genuine* contractors;
  3. the shortage of new IR35 cases HMRC is launching, and ponders what their inaction may mean against the backdrop of SDC.

As Keeble portends, the taxman is keeping schtum on many of these issues. At a time when limited company owners need clear guidance, HMRC’s silence is a big, fat fail.

Do independent professionals need any more ill-advised vendettas, as she reminds us UCATT embarked upon after the last budget?

“Do you… think there’s going to be a war? Siriusly?”

“It… feels like it did before.”

Are we at the start of a Greece-like slippery slope?

But back from the land of fantasy – and Harry Potter. HMRC needs to sort out what counts in appraising a genuine contractor business and who is a disguised employee.

We’ve seen what’s happened in Greece, where self-employment is a way of life. The avenues for avoiding tax are largely unpoliced, leading to an unsustainable economy.

It’s a safe bet the government won’t want to emulate Greece. But, with cuts aplenty expected in the upcoming budget, it’s doubtful that HMRC will have fresh funds to tighten its lax grip on IR35.

So what’s taking IR35’s place?

No one can say for sure that SDC will usurp IR35. The Supervision, Direction and Control policy in itself is ambiguous. As Keeble points out, we know that SDC will affect umbrella workers. But who’ll be responsible for its implementation?

Will the recruitment agency have to categorise the level of supervision each job invokes, risking putting off contractors if the assignment decreases potential benefits? Will the client/employer have to decide and face similar barriers? Is the client even interested in how a contractor pays themselves, just so long as they can complete their assignment?

It almost seems as if the taxman has seen the landscape changing and deployed the ostrich defence mechanism. Thousands and thousands more people will become self-employed as how we work changes. And HMRC knows that they’ve got to change, too, but perhaps don’t know how.

The way we work is changing; don’t fudge it

There’s simply no need for a large percentage of contractors and freelancers to go to site, any longer. The cloud, desktop software, Android apps – they offer tremendous real-time connectivity.

Being available for your client without having to hike across the city has rendered once in situ roles remote. If anything, this remote working helps negate the impact of restricted travel and subsidies that all the fuss was about earlier this year.

The key will be in how the taxman defines the remote workforce, compared with contractors who have to go to site. If someone works from home, irrespective of relationships, can anyone raise a convincing argument for them being an employee?

Once that’s established, it will give clearer guidance on how to assess on-site contractors. HMRC will have something to compare the UK’s temporary workforce against.

Going after low-hanging fruit is not the answer

At the minute, the taxman seems to be in denial, hanging on to beliefs that old-school classification remains valid. Comparing someone prepared to set up their own limited company with someone reliant on an employer working out their PAYE is like comparing apples with oranges. And as Greece has found out, oranges are not the only fruit.

What is certain is that Chancellor Osborne won’t want any bad apples in our barrel. We must preserve the reputation that genuine contractors have built whilst helping nurture the seed of the UK’s economic recovery. But until there’s clear definition of their role, the whole system remains exposed to the suspect few who are rotten to the core.

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