Can the IR35 Forum really influence HMRC, so that it fundamentally improves the way it administers IR35, thus relieving contractors of one of their greatest stresses? Or is the coalition following Tony Blair’s example, by appearing to agree with everyone whilst doing nothing or very little on any given issue?
On the face of things, it very much looks that way based on Exchequer Secretary David Gauke’s recent article in PCG’s May edition of Freelancing Matters magazine, and the fact that a full year after the coalition came to power, in which time Chancellor George Osborne has presented two budgets, nothing has changed for contractors.
By being full of sympathy and understanding for the plight of contractors, but proposing few meaningful solutions, Gauke has yet to prove that his words aren’t simply Blair-style dissembling. Certainly, from the lack of any government action so far, contractors should not expect any dramatic or swift changes, let alone improvements.
And let’s not kid ourselves that the Coalition will definitely improve things for contractors, particularly as they’re under such intense pressure to maximise tax revenues. In fact some of the solutions being considered, such as the ‘in-business’ tests, could actually take the contracting sector backwards, as is the case in Australia, which now has draconian personal services income rules.
But let’s not be too downbeat – there is potentially some substance in the spin. According to Gauke, HMRC is committed to “overhauling” how IR35 is administered. And he claims that the newly constituted IR35 Forum will “be in a position to influence the development of the new strategy, monitor HMRC’s delivery and report back to HMRC.”
This has the potential to be good news for contractors. Therefore, it is beholden on players in the contracting sector to help HMRC find solutions to “better administration of IR35” that will actually benefit contractors by clarifying what IR35 actually means. And of course, it has to be recognised that any solutions must also benefit HMRC, taxpayers and the economy, by ensuring that disguised employees pay the taxes they should.
An initial task for the members of the IR35 Forum will be to define what “better administration of IR35” actually means. For example, is IR35 in future to be used to tackle anti-avoidance or simply to generate more tax. If the former, genuine contractors should benefit from more focussed targeting of high-risk groups like the ‘Friday-to-Monday-mob’, ‘tail-end-charlies’ and ‘perm-tractors’. If the latter, then we’ve made no progress with the new government, as the emphasis will be on ensuring a high volume of investigations to maximise tax yield, and genuine contractors will suffer.
The final piece in the jigsaw puzzle that may become better administration of IR35 is HMRC’s ability to implement any new strategy. The tax-gathering and enforcement organisation is publicly acknowledged to be desperately under-resourced even now, and public sector spending cuts will reduce its already overworked workforce.
Big promises and grand policy statements that are not backed up with real plans and appropriate resources were a feature of the previous government’s twelve-year administration. And it seems that the coalition government is falling into the same habit of “doing a Blair”. Let’s acknowledge that these are still relatively early days for the government, and hope that in the near future it will bring about some real, meaningful and positive change for contractors.
If not, it looks like we might be in for another few years of ‘business as usual’: fine words from government masking the fact that contractors will remain a source of easy money, and continue to be bullied into carrying an unfair tax burden through the unclear and unreasonable implementation of IR35.
Published: Wednesday, May 18, 2011
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