IR35 is back (it never went away). What reforms are needed?

I had planned to post this a few weeks ago, but then Kwasi Kwarteng’s Growth Plan scuppered all of that with its oddly-framed decision to “scrap IR35”.

However, we can carry on as usual now that Jeremy Hunt has reversed that decision.

So, where is IR35 going? Well, we have seen HMRC getting criticism from a number of quarters, including the Public Accounts Committee (PAC) which claimed that there are “structural problems” that need addressing in terms of how the tax avoidance rules work in the public sector (the DWP, the Home Office and the Ministry of Justice have all been stung for multi-£m tax bills since the 2017 introduction of IR35 reforms in the public sector.

Earlier this year, the Economic Affairs Finance Bill Sub-Committee of House of Lords published what looks like a reasonable set of conclusions. The full letter can be seen here [pdf], but in summary, they are calling for the following:

  • Adjust HMRC’s IR35 tool (this refers to CEST which, in fairness, does seem to have gone through a number of adjustments)
  • Address blanket assessments – an issue that Bectu have raised. In film and TV, having the ESM4118 list has been helpful, in that some employers who are disposed to just doing blanket determinations of employment status based on very little evidence have been easy to persuade to treat someone who is self employed as actually being self-employed
  • Consider IR35’s impact on the UK economy – is it hitting productivity?
  • Research the burden of costs on companies and contractors
  • Regulate umbrella companies (The TUC have called for these to be banned – Bectu broadly supports this call with a few caveats). These companies come up with increasingly complex intermediary relationships that have even seen people avoiding tax by taking their income as a loan.
  • Consider tax status alongside wider employment rights – something that is long overdue. Unions everywhere have been calling for something that can help deal with the menace of bogus self-employment that afflicts the so-called ‘gig economy.’ Bectu is usually a bit cautious around ‘gig economy’ reforms as members are often unusual among the wider populace of trades unionists. In some cases, they would voluntarily choose self-employed status as it is the best fit for the way that they work.

Broadly, this is an approach that Bectu can get behind. Some members would understandably want IR35 scrapped altogether – particularly where risk-averse engagers do blanket determinations of employment status (and do them wrongly).

However, other workers will undoubtedly benefit from the closing of abusive tax loopholes in which unscrupulous employers push people into bogus self-employment.

Footnote: This isn’t a film/TV/theatre-based perspective – it doesn’t mention job-titles that are / aren’t on the ESM4118 list (and other relevant lists) – the big issue that gets raised with Bectu the most.

It will be interesting to see what the new PM and his team do next.

This entry was posted in Employment intermediaries, Employment Law and Rights, Employment status, ESM4118, Gig economy workers, IR35, Loan arrangements, Productivity, Tax and tagged . Bookmark the permalink.

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