Pressure building: What does the current political flux mean for IR35 changes?

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

It won’t have escaped anyone’s attention that we’re about to enter a prolonged period of uncertainty about Britain’s place in Europe.

However, recent days have not simply seen debate about what the latest ‘flex-tension’ granted by the European Union may do for chances of a Brexit taking place or not.

Deliberations about Europe have, of course, led to the postponement of the Budget which was originally planned for next week and have arguably been the principal factor in Parliament’s decision to hold a General Election next month.

There has been much speculation about whether both developments, in turn, might lead the shelving of plans to introduce new off-payroll working or IR35 rules, as they’re known, for the private sector.

That’s despite the Finance Bill including the provisions being published in July.

IR35, Income Tax & National Insurance Contributions

For those unfamiliar with the measures, I should perhaps point out that they’ve been somewhat expected for a number of years, given the degree to which respective governments have expressed concerns about missing out on substantial sums in Income Tax and National Insurance contributions (NICs) due to a perception that the existing rules not being applied correctly.

As a result, in 2017 the Tories shifted the historic burden of determining employment status. Rather than contractors themselves being able to establish whether IR35 rules were relevant to them, that responsibility fell to the public sector agencies using their services.

Government has been keen to boast of how successful the change has been, suggesting that the initiative had generated an additional £550 million in tax revenues.

For all the feverish – and, dare I say it, slightly hopeful – discussion about how they might be affected by European and electoral flux, the Treasury has declared that it “remains committed” to extending those same regulations into the realm of private business and the charitable sector too next April.

It’s fair to say that the prospect has made waves since the details of the rules were first announced.

Only in August, I wrote of how HMRC was accused of trying to “terrify” 1,500 contractors working for one of the country’s biggest pharmaceutical companies, GlaxoSmithKline (GSK) by sending them letters which claimed that they were “disguised employees”.

In what is assumed as being very much a related development, we have learned that figures compiled by the Office for National Statistics (ONS) show the number of freelances working in the IT industry in the UK to have fallen for the first time in five years

How much the 2.4 per cent fall in tech contractors is due to fears about what the new IR35 rules would mean and how much is down to the decision of major companies such as GSK, Barclays and HSBC refusing to use freelance personnel is difficult to determine.

Whatever the cause, it would indeed seem that – to borrow a topical Brexit-related phrase – HMRC’s own ‘Project Fear’ has been effective. I appreciate the very real concerns of the sort of business owners whom I and my colleagues deal with on a regular basis about what an apparently beefed-up IR35 system will mean for them.

Even so, I wonder whether the tendency of modern reportage to draw out the most sensational elements of any story has over-stated the Revenue’s case.

It’s almost certainly true that reforms were needed as the rules weren’t being applied correctly.

However, that’s not just the fault of freelances. Yes, HMRC may have proven its point in relation to individuals such as three BBC presenters who lost a tax tribunal case on the issue only last month.

Yet some of their media peers, involving radio and television presenter Kaye Adams have been among those inflicting equally high-profile defeats on the Revenue.

According to the Independent Professionals and the Self Employed (IPSE), the body lobbying ministers and business on behalf the country’s freelances, Ms Adams’ case was, in fact, the fifth of six IR35 cases which HMRC had lost since new public sector rules came into being.

I think it’s important to realise that it’s not as though we’re looking at radically different rules. All that’s changed, in essence, is who bears the risk in determining employment status and, therefore, has the responsibility for calculating and handing over taxes due to HMRC.

“Medium & Large Sized Organisations Outside the Public Sector”

It’s just as imperative to acknowledge that April’s changes won’t necessarily affect every single private sector business.

As the policy paper accompanying July’s Finance Bill makes abundantly clear, only “medium and large-sized organisations outside the public sector”, the contractors who work for them and recruitment agents helping provide freelance personnel will be involved.

Many will be sufficiently large, astute and pragmatic to view the impact of the new rules simply as a risk management issue and not a reason to be unduly worried.

Flicking through the day’s newspapers, it’s easy to see that perspective is rather hard to come by right now, yet as many clients who’ve contacted us have found out, it is within reach.

If you or your clients need help with tax issues relating to IR35, why not contact us at info@etctax.co.uk or on 01925 363006?

We have vast experience in dealing with companies and contractors regarding off-payroll rules since their introduction and can help you too.

Read more about IR35 below…

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