The Lords have concluded that IR35 is worse than useless; it’s counterproductive. That’s a great message, but who’s listening? And will anyone do anything?
The first-ever objective report by UK politicians – albeit unelected Lords – has come to the only conclusions it could: that IR35 could never achieve what it was intended to; that the legislation is unlikely ever to be workable; and that those who support it have failed to justify its continuing existence.
Shockingly, the elected politicians who have continued to press for the IR35 status quo refused to engage with the Lords. They left HMRC to justify the legislation, which it was unable to do. HMRC’s attempted justification of IR35 on the grounds of its deterrent effect was embarrassing to watch. So much so that one almost felt sorry for the poor stooges put forward to defend HMRC’s flimsy ‘evidence’ and its even flimsier figures.
The Lords saw through this and have challenged HMRC to objectively justify with clear evidence where they get their deterrent number of £550m from, or otherwise consider suspending the legislation with a view to removing it.
When you look at the details of HMRC’s evidence to theHouse of Lords Select Committee on Personal Service Companies, the assumptions underlying the £550m value of IR35’s deterrence are quite astonishing. Whether the taxman will be compelled to provide a justification to the Lords is unclear, but experience is that such calls are simply ignored.
So everything now hangs on the ability of HMRC to rise to their bluff being called and to produce detailed objective evidence. If it can’t – and we know it won’t be able to – then perhaps our elected politicians will finally acknowledge it’s time to take IR35 off the table.
But that’s where what should be done may well run slap-bang into the wall of the reality of UK politics. A key concern of the Lords – and anyone who cares about the democratic process – was the government’s refusal to cooperate with this valuable inquiry. The legislation itself is really bad, but neither the Conservative-Liberal coalition, nor the Labour Party that actually drafted it, want to be taken to task for their failings.
In fact, this failure by any of the leading parties with a chance of making up the next government – or part of it – is desperately depressing. With May’s local elections almost upon us and campaigning for next year’s general election already underway, it seems reasonable to assume IR35 won’t make it onto anyone’s agenda, let alone their manifesto.
My fear is that once again we’ll see politicians either ignore the mess they have made of IR35, or at best simply pass the baton to HMRC again. And then they’ll blame the taxman for not being able to enforce unenforceable legislation.
It was pleasing to see that the Lords acknowledge the valuable contribution contractors make and the need to have people operating via personal service companies. They also acknowledged that the number of IR35 investigations was so small that people paid lip service to bothering about it.
Throughout its report, the Lords quoted ContractorCalculator’s evidence to the committee. They particularly liked our observation on IR35 that: “It does seem somewhat wasteful having industry experts and HMRC standing around a dead horse discussing how they can make it win the race.”
More significantly, the Lords highlighted ContractorCalculator’s long-running campaign to merge income tax and National Insurance, which would create a real solution to IR35 and the reason it came into being. This is now supported by a wide consensus of taxation experts, industry bodies and – it appears – the members of the Lords inquiry committee themselves.
Perhaps the best we can hope for is that after 15 years of trying to bury the IR35 body this report will at least be a further nail in the coffin.
Nobody said politics was easy. Or fast.