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Could you benefit from a Government review of flexible working?

Better Government policy, simplified regulation and fair tax treatment are some of the benefits that you could enjoy if a Government review into the tax treatment of contractors and flexible workers goes ahead.

A closer analysis of the sector has been high on the agenda for contracting stakeholders recently. However, it took a step closer to becoming reality after the Government’s own advisory body, the Office of Tax Simplification (OTS), recommended a review in its response to the ‘Off-payroll working in the public sector’ consultation, which focuses on the proposed changes to IR35 rules in the public sector from April 2017.

The recommendation marks a vital opportunity for you to help overhaul damaging legislation and restore parity within the tax system, but further pressure is required. Your backing is required to raise awareness and support lobbying efforts.

Current bodies calling for Government review

The OTS intervention comes after months of campaigning for a strategic review by contracting trade body PRISM and the Scottish National Party, and days after PRISM itself announced that it had asked the Social Market Foundation to conduct an independent review.

Calls for a strategic review have also been backed either publicly or in the consultation responses from:

  • ContractorCalculator
  • The Association of Independent Professionals and the Self Employed (IPSE)
  • The Confederation of British Industry (CBI)

The recommendation itself was issued in response to HMRC’s proposal to reform IR35 in the public sector. It adds to a mounting number of reports from contracting stakeholders and relevant parties illustrating the threat that the proposals pose. Most notably:

“The proposed IR35 changes are merely a symptom of a wider misinterpretation of the tax affairs of contractors,” comments ContractorCalculator CEO Dave Chaplin. “The fact that an organisation such as the OTS can see this is a promising sign, but contractors need to be active when it comes to lobbying if a review is going to come to fruition.”

OTS recognises gig/sharing economy and calls for review

‘We think there is a need to keep this whole area of how the flexible workforce engages with the tax system under review,’ reads the OTS response.

‘We think this is particularly necessary with the rise of the gig/sharing economy. We think that a review focusing specifically on the taxation of the flexible workforce should be considered.’

According to PRISM CEO Crawford Temple, the timing of the OTS recommendation is critical: “The OTS’s response is an important intervention at a crucial time because they are the Government’s own advisory body on these issues.

“The OTS’s remit is limited to taxation, so that’s why they have focused on tax in their call for a review. But the weight of support for a strategic review that looks at everything including employment status, benefits and employment rights is growing all the time.”

OTS says new IR35 rules will introduce complexity

Aside from calling for a Government review, the OTS also picks numerous holes in the proposals. It concludes that they won’t deliver simplification, and that certain aspects introduce additional complexity, including:

  • The need for engagers to request information to help determine IR35 status
  • The uncertainty of HMRC’s proposed status test and online tool
  • Boundary issues and market distortions between private and public sector

The OTS takes particular issue with the shifting of the burden of determining IR35 status onto the engager. Experts have previously warned that the risk imposed on engagers is likely to result in many contractors being unjustly forced into inside-IR35 contracts. As the OTS points out, a lack of cooperation between contractor and client could pose further problems:

‘In any test where one party will need to consult another, there is an admin burden and unless there is an incentive to answer the question, it is likely to go unanswered.’

IR35 tool – is HMRC fighting a losing battle?

The OTS also backs ContractorCalculator’s argument that an online IR35 tool wouldn’t be able to provide a binary result in all instances, pointing towards the change in circumstances that contractors often encounter during a contract:

‘The first two parts of the test do not give certainty as the decision provided is not binding. Even if it [the online tool] gave certainty on day one, it may not apply if there is a material change to the contract, which the engager and/or the contractor may not be aware of.’

In addition to this, scepticism surrounding HMRC’s proposed tool is likely to cause further problems. The OTS refers to the scrapped Employment Status Indicator (ESI) tool that was considered by many to be biased in favour of HMRC, adding:

‘Any new tool is likely to be perceived in the same way unless the coding that is based on the employment status case law is seen to be fair. The conclusion, therefore, is that unless the new digital tool becomes a trusted tool, it is unlikely to be used.’

Contractors, act now to force through Government review!

“Pushing back the damaging IR35 proposals is one thing but a Government review could prove hugely advantageous for contractors in the long run,” concludes Chaplin.

“The OTS alludes to the dividend tax changes and travel and subsistence reforms as measures that have hit the contract sector particularly hard recently, and its measures such as these that could well be eventually abolished is a review is conducted.”

Don’t allow the calls for a Government review to fall on deaf ears. If efforts to force a strategic review are going to be realised, they need your backing. Sign up to the ContractorCalculator newsletter to stay informed on the latest events and to find out what you can do to help.

Published: Thursday, 8 September 2016

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