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IR35 Campaign: Fighting the Off-Payroll Reforms

Contents:

MP LETTER TEMPLATES

IR35 FACTSHEET - DOWNLOAD

TAX RECLAIM - For wrong "inside IR35" assessments

ContractorCalculator is campaigning to prevent what would be the most devastating change to IR35 since its inception, and we need your help.

Having imposed the ‘off-payroll working rules’ upon the public sector, HMRC is intent on enforcing a private sector rollout, and could do so as soon as April 2019. This is despite the impact of the reforms in the public sector, which demonstrated its crippling impact on public sector projects and industry as a whole.

Please help us prevent changes to IR35 which would:

  • Force thousands of contractors into false-employment
  • Expose self employed contractors to excessive taxation
  • Drive up project costs significantly
  • Deprive UK industry of essential access to key skills
  • Further incite tax non-compliance and tax evasion.

Use this resource to discover:

  • The full extent of the threat posed to UK contracting and industry
  • What you can do to help prevent further chaos
  • How you can receive a fair IR35 assessment.

Off-payroll reforms: the impact on contractors

In April 2017, Government introduced legislative changes to IR35 in the public sector, known simply as the ‘off-payroll rules’. Following the changes, public sector hirers are now responsible for determining the employment status of the contractors they engage, and both they and agencies are liable for any unpaid taxes due to an incorrect assessment.

To avoid the tax liability risk that accompanies an ‘outside IR35’ assessment, many organisations have deemed all their genuinely self employed contractors to be caught by IR35. When this happens, the contractor is forced to pay employment taxes without the equivalent employment rights.

Non-compliance amongst agencies, which HMRC has failed to clamp down on, has meant many contractors are also footing the bill for employer’s NI through their limited company.

If you are a permanent employee who can’t understand what all the fuss is about, consider this: being caught outside IR35 means that, although your salary remains the same, you are forced to pay your company’s 13.8% tax bill out of your own salary, and in addition, all of your employment rights are lost.

REAL IR35 FACTS: Please read and distribute our 4-page PDF IR35 factsheet about the reforms designed to counter HMRC's misleading rhetoric in their consultation document.

Off-payroll reforms: the impact on industry and compliance

The reforms have caused widespread damage to the public sector through poor implementation and misinformation spread by HMRC. The damage was exacerbated by HMRC's poorly developed and now flawed Check Employment Status for Tax (CEST) tool, which was developed to try and help firms assess IR35 status.

To avoid unfair tax treatment, thousands of contractors abandoned the public sector. This left hirers depleted of essential skills and resulted in a huge amount of delayed and cancelled projects.

The changes have also encouraged non-compliance, with many unprepared agencies and hirers issuing blanket 'inside IR35' assessments and refusing to hire contractors via their limited companies. This has created two outcomes:

Despite the widespread media coverage of the damage, HMRC’s IR35 Forum minutes from December 2017 (released in February 2018) infer that it intends to roll out the reforms into the private sector in April 2019.

What is the real reason for the IR35 reforms?

HMRC doesn’t care about how IR35 affects contractors or freelancers. This is partly because the taxman, along with the Chancellor, falsely believes that all contractors using limited companies are tax avoiders.

Over the years, HMRC has used rhetoric to frame IR35 in a manner which validates its unfair reforms. In so doing, it hoped to drum up support amongst the public and MPs. This has ranged from the absurd notion of ‘protecting vulnerable workers’ to its insistence that ‘two people doing the same job should pay the same amount of tax’. The latter of these even sounds plausible, but it is an aspiration, not the law.

While HMRC and Goverment presents flawed arguments, the market responds by conducting surveys that provide empirical evidence to disprove these arguments. HMRC and Government ignore these findings as they oppose the propaganda that HMRC hopes will increase its tax yield. As the taxman’s responses in the media have demonstrated, HMRC isn’t prepared to let facts prevent it from acting upon its flawed set of principles.

While HMRC presents the off-payroll rules as a means of restoring parity, it is in fact an effort to get the self-employed to compensate the Treasury for diminishing employer’s NI contributions. Here’s why:

  • A self-employed contractor is a one-person business
  • Employers pay 13.8% employer’s NI of on top of an employee's salary
  • When firms hire contractors, they don’t pay employer’s NI
  • HMRC is concerned about tax loss arising from self-employment
  • The tax system needs updating, but Government has no courage fix it
  • Instead, HMRC wants to increase taxes on the self-employed via IR35

But, as we have seen, this ideologically driven approach results in widespread ‘false employment’ and fuels aggressive tax avoidance. And despite years of Government rhetoric about clamping down on tax avoidance, as the public is very aware, they fail to do so.

Fighting the off-payroll rules: ContractorCalculator’s campaign goals

The off-payroll rules, in their current form, threaten incontrovertible damage to the UK labour market, some of which has already been realised. ContractorCalculator’s primary aim is to prevent these changes reaching the private sector, but there are numerous possible outcomes that would hugely benefit all concerned. Our campaign goals are to:

  1. Push back on a private sector roll out
  2. Get changes made to the underlying reforms in the public sector
  3. Ensure that any ‘inside IR35’ assessment means the employer pays their own NI bill*
  4. Ensure that any ‘inside IR35’ assessment results in the worker obtaining full employment rights
  5. If none-of-the-above can be realised: neutralise the impact of the changes by preparing the entire market for the roll out

* The new rules state that the hirer is responsible for paying the employer’s NI. Whilst this is what the legislation says, the reality is that all contractors are being forced, legally or otherwise, to pick up this extra cost out of their pay, and no extra tax is actually paid by the client. Instead, the entire tax bill, including the employer’s NI, is in many cases unlawfully being paid out of the gross rate paid to the contractor. This enables corporations to dodge their tax liabilities, and is not what it was designed to achieve.

How you can help the lobbying campaign:

To stand a chance of overcoming HMRC’s draconian regime, we need the full support of the contract sector, which is where you come into play. As the response to recent campaigning efforts by ourselves and other industry stakeholders have shown, the taxman doesn’t care about contractors. There is no point trying to convince HMRC with facts, because facts don’t penetrate its dogmatic shell.

Please be aware, that trade bodies and campaigners like us at ContractorCalculator cannot bring about change on our own. Relying on us fighting without your help will not work. The only way to make governments listen is for consituients to contact their MPs. If you do not get involved then the campaign will not have an affect.

We need you to raise awareness with your local MP. They may be well versed on HMRC’s IR35 rhetoric, but they hold the key to securing change for the better. Here is how you can help ensure that they do so:

  • Write multiple letters to them
  • Arrange to meet and speak with them, if possible
  • Arm them with the facts and figures provided by this campaign
  • Demonstrate to them that what HMRC plans is unfair on contractors, hirers and agencies and will have widespread negative repercussions for UK Plc.

To reiterate: We cannot do this on our own, and neither can any trade group. We can arm you with what you need, but you must be proactive to bring about change. That's how lobbying can be effective.

Sample IR35 campaign letters for your MP

Here are templates for letters to your MP: Word version | PDF version.

IMPORTANT NOTE: Please put some effort into personalising your letter. Explain the impact on you and your other constituents.

INCLUDE OUR FACTSHEET: We have published a 4-page PDF IR35 factsheet about the reforms to counter HMRC's misleading rhetoric. Please attach this to the email or letter you send your MP.

The likely response from the first one is a stock response from your MP, which will be provided by the Financial Secretary to the Treasury.

We have collected a few of these: Stock response #1, stock response #2.

After you have received the stock response, write a second letter.

Please send all responses to us on info@contractorcalculator.co.uk.

Tax reclaims - for wrong "inside IR35" assessments

You may be able to claim back your overpaid tax if:

  • You were wrongly assessed as inside IR35 when you should be outside.
  • You've had Employers NI, Apprenticeship Levy or Pension deducted from your agreed contract rate.
  • You were forced to use an umbrella company rather than your own limited company.

If you have been wrongly assessed, had employment taxes deducted, or forced to use an umbrella company, then it's possible you are the victim of misrepresentation and have had unlawful deductions from your earnings.

You could reclaim thousands of pounds in overpaid tax.

Find out more about claiming your tax back at IR35Testing.co.uk.

HMRC's consultation document and IR35 factsheet

On 17th May 2018, HMRC published their consultation document, which included a factsheet containing multiple questionable claims and mistruths, providing an inaccurate representation of the impact of the changes.

ContractorCalculator has published a real IR35 factsheet, which intends to set the record straight on the damaging effects that the off-payroll rules have had on the public sector.

Our factsheet debunks the falsehoods that HMRC is purporting, and counter-balances the taxman’s blinkered and biased view.

Join the fight on LinkedIn

LinkedIn is becoming a hotbed for IR35 debate, and is the essential place to stay up-to-date with the campaigning efforts of ContractorCalculator and others.

Please follow or connect with our CEO Dave Chaplin on LinkedIn, and make your voice heard. Dave regularly posts about the IR35 reforms and is an essential contact to have for keeping abreast of the latest discourse surrounding the legislation and its proposed changes.

Facts and data

New Off-Payroll IR35 factsheet published to counter HMRC’s misleading rhetoric
ContractorCalculator published its IR35 factsheet which intends to set the record straight on the damaging effects that the off-payroll rules have had on the public sector.

ContractorCalculator Survey: How damaging were the IR35 reforms?
This survey of c1600 contractors and permanent staff working in the public sector was used to find out what happenedafter the reforms were introduced.

APSCo IR35 Reforms survey highlights damage caused by HMRC
Public sector organisations are shouldering the costs of recent changes to legislation around ‘Off-Payroll’ working, according to APSCo.

NHS survey: patient care services in crisis as IR35 reforms take their toll
Patient care standards in NHS departments are deteriorating rapidly as a direct result of the public sector IR35 reforms.

If you have any data relating to the Off-Payroll Reforms then please tell us via info@contractorcalculator.co.uk.

Ensuring compliance with IR35

If changes to IR35 can’t be achieved, we need to work hard to mitigate the threat of false employment by ensuring that contractors are granted fair IR35 assessments. Ensuring that hirers and agencies abide by their compliance requirements can be easier than you think. For them their is lots at stake - all of which come down to the impact on their profits.

Why you should avoid CEST

HMRC is still encouraging use of its flawed IR35 tool, CEST, to establish IR35 status. Despite widespread and unanimous criticism together with published evidence demonstrating that it is flawed and not fit-for-purpose, HMRC maintains the denial that it provides accurate answers - despite not having any proof to back its claims. Using CEST does not amount to an accurate or fair IR35 assessment. Here are the reasons why:

  • HMRC has been unable to provide any evidence that CEST works, despite ongoing pressure from industry stakeholders
  • The taxman has acknowledged that CEST doesn’t assess mutuality of obligation (MOO) – a key part of case law which is essential for establishing status
  • There is no legislation that says CEST must be used for assessments
  • The tool has no legal authority and courts will ignore it
  • There is no paperwork to prove CEST gives the correct answers
  • Status experts have widely criticised the tool and dismissed it as inaccurate
  • In seven of the 22 historic IR35 court cases, CEST gives the wrong answer.

To counter the criticism, HMRC only needs to prove that CEST reaches the correct decision when tested against the 22 IR35 court cases. This is a simple ask, yet HMRC refuses to be held to account for over a year, despite repeated requests from stakeholders.

Regardless, whilst the CEST tool does not test for MOO, and wrongly assumes it exists for all contractors, the tool is unfit for use.

In it's current form, CEST it is nothing short of an ultra vires attempt by HMRC to override the countries tax laws and encourage already compliant tax payers to pay more tax than they should.

Key reporting on CEST:
Under the bonnet of the HMRC IR35 tool
HMRC CEST tool has no legal authority, says IR35 legal expert
HMRC deliberately omitted key IR35 case law from CEST tool
IR35 reforms: HMRC’s tool could mean wholesale stitch up of contractors

Testing your status with IR35Testing.co.uk

There are several deterrents preventing hirers from taking the required measures to assess contractors under the off-payroll rules:

  • Tax liability risk in the event that HMRC contests a status decision
  • The perceived administrative burden of testing contractors for IR35 in bulk
  • The perceived legal cost of hiring lawyers to assess contractors.

Fortunately, IR35 Testing, a tool developed over 8 years by the team at ContractorCalculator, provides a solution which eliminates cost, mitigates risk and workload for hirers, and ensures that contractors receive a fair and accurate assessment.

And, unlike CEST, this online IR35 tool is underpinned by case law, and returns the correct decision when tested against each of the 22 historic IR35 cases.

IR35 Testing is an AI-powered solution, which has undergone continuous development since 2009, in collaboration with employment status lawyers and developers. It isn’t prone to human error, therefore, it promises a level of accuracy that not even an employment lawyer can guarantee.

Users can obtain a result from IR35 Testing online for free within a matter of minutes, negating any perceived heavy workload on the hirer’s part. The test results can be underwritten by insurers which eliminates any tax liability risk. Competitive fees needed to secure documentation that provide proof of status can be offset to the contractor. Most importantly for contractors, IR35 Testing actively advises on ways to avoid IR35, meaning fewer contractors will have to suffer unjust tax treatment at the hands of HMRC.

Acquiring legal help

With IR35 Testing, legal assistance from approved providers is readily at hand, whether it’s to validate a pass or to address contractual issues preventing a pass.

These services are available for a fraction of the cost of enlisting an employment status lawyer to carry out a single contract review. Moreover, they mitigate tax risk effectively while ensuring contractors can continue to operate outside of IR35 legitimately.

Recent IR35 News

The new Off-Payroll tax – coming to the private sector and killing business

HMRC is attempting to introduce an Off-Payroll tax to the private sector, to be paid by firms engaging contractors, many of whom don’t even realise.

This week | Mon, 16 Jul 2018

HMRC dismisses IR35 forums members views and courts on laws omitted from CEST

HMRC’s view remains unchanged over its omission of case law from CEST and dismisses the compelling evidence put forward by IR35 Forum Members.

Last week | Tue, 10 Jul 2018

How contractors can and should use a limited company if inside Off-Payroll (IR35)

Limited companies remain advantageous for contractors caught by the Off-Payroll rules, once they have overcome the accounting challenges posed.

Last week | Mon, 09 Jul 2018

HMRC new Paper on Mutuality of Obligation incorrectly defines MOO, invalidating CEST

HMRC’s Paper on Mutuality of Obligation for the IR35 Forum incorrectly defines a key element of employment law that the taxman is supposed to enforce.

Two weeks ago | Thu, 05 Jul 2018

External sources

HMRC: Off-payroll working rules (IR35) for public authorities
HMRC: IR35 Forum
IR35 Testing - free status testing tools for contractors