IT contractors and employment agencies are being urged to throw their weight behind a campaign calling on the government to “fix or scrap” the controversial IR35 tax avoidance law.
The campaign, run by contracting authority ContractorCalculator, was launched ahead of the government’s Spring Budget on Wednesday 15 March 2023, and seeks to reverse the “detrimental impact” IR35 legislation is having on UK businesses and communities to the contractor.
To this point, IT contractors, employment agencies and end-hirers are encouraged to write to their MPs ahead of the budget with details of how IR35 affects their livelihoods and businesses.
Changes to how IR35 legislation works in the public and private sectors were introduced in April 2017 and April 2021, respectively.
The changes see contractors lose control over determining for themselves whether the work they carry out and how it is carried out means they should be taxed in the same way as salaried staff (within IR35 ) or as unpaid workers (outside IR35).
Instead, the responsibility for determining how to tax them now rests with public and private sector hiring organizations, which are expected to individually check the employment status of each contractor they engage.
The changes have been introduced as part of a disguised clampdown on work by HM Revenue & Customs (HMRC), which sees the system of allowing contractors to know their own work status being abused by some individuals to artificially reduce how much employment taxes. they pay.
However, the transfer of responsibility for determining how to tax contractors to the organizations that join them is not without difficulties, due to the increase in the administrative burden of the changes placed on the organizations of public and private sector within the law.
In response, Computer Weekly reported several instances in which public and private sector organizations sought to avoid the changes by introducing hiring restrictions that prohibited the engagement of contractors or rule that all contractors on their books are within IR35 by default.
Dave Chaplin, CEO and founder of ContractorCalculator, said – in addition to the above – there are a number of other “fundamental flaws” in the legislation that will have a “punitive effect” on businesses in the UK and more broadly. economy.
Chief among them is the problem of double taxation, also known as the settlement of offsets issue, where HMRC fails to take into account the amount of tax contractors have already paid in instances when calculating how much tax is due. which is owed to the non-compliance of end-hirers. .
This has led to accusations that HMRC is collecting more tax than is levied by penalizing public and private sector organizations for failures to comply with IR35.
“Off-payroll needs to be fixed or eliminated in order to regain the confidence of the self-employed, and even if we don’t see a U-turn, some straightforward changes in the law can go a long way to That’s it,” said. Chaplin.
“The double taxation flaw is crippling. It sees contractors and companies paying tax on the same amount and companies receiving tax bills four times more than they should. Surely, this is the antithesis of conservatism? “
He added: “HMRC has known about this error since March 2018, but never warned ministers of its impact statements when the legislation was pushed through Parliament.”
Another issue with the legislation is the fact that recruitment agencies may find themselves covered by another company’s tax bill, even if it is not part of the decision-making process when the contractor is hired. Also, there is no way left for contractors to appeal or challenge an employment status decision once it is made.
“The off-payroll legislation and CEST have caused chaos for contract workers and tenants who are all unfairly penalized as a result. HMRC need to put their hands up and admit that CEST is wrong, a bad failure, and should be removed”
Crawford Temple, Professional Passport
“The most serious errors result in double taxation, tax injustice and prevent access to natural justice for taxpayers. Such effects are incompatible with conservative values and are politically toxic for the incumbent government,” said Chaplin.
“If the government wants to regain the confidence of the self-employed and get their votes in the next election, it must seriously look at the law and fix its flaws.”
Crawford Temple, CEO of independent umbrella company compliance assessment firm Professional Passport, said he was not convinced IR35 would feature in any of the chancellor’s budget announcements, but urged the government to consider reviewing how the online Check Employment for Status works. Tool (CEST) of HMRC. works.
“I will urge [the chancellor] to take a long, hard look at HMRC’s Check Employment for Status Tool and finally recognize that it should be removed from use. It has to be the most expensive free tool on the market if you look at the penalties that government departments have faced in the last year because they used CEST and got the determinations wrong,” he said.
“All told, the off-payroll and CEST legislation has caused chaos for contract workers and tenants who have all been unfairly penalized as a result. HMRC need to put their hands up and accept that CEST wrong, a bad failure, and should be removed.
