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IR35 – is HMRC taking liberties with our rights?

Dave Chaplin, CEO, ContractorCalculator:

Now here’s a thing. Did you know that there is one reserved occupation where the individual loses all their rights, is guilty until they prove themselves innocent and contract law simply doesn’t apply? And we’re not talking about terror suspects...

Welcome to the twilight zone of contracting and IR35.

Just when you thought it was safe to go back into the workplace by running a business providing solutions our economy desperately needs, HMRC has a little surprise for you – a nasty piece of legislation called IR35.

You’ve registered your own limited company (because clients won’t give you work otherwise), have won a contract through an agency and you’re happily getting on with achieving your client’s project goals.

Then along comes a tax inspector who tells you that you’re really a ‘disguised employee’ and not a contractor at all, and issues a demand for thousands of pounds of extra tax that will blow your life’s savings….and more…. You point to your contract as proof of your non-employee status, and even your client insists they have no intention of you being an employee, but no, the inspector says your contract is simply irrelevant and doesn’t care what everyone’s intent is. You are guilty as charged, and you have to pay up!

And what’s worse, even though you must pay tax as if you were an employee, you don’t have any of the security or benefits of being an employee.

But the injustice doesn’t stop there, because, according to UK tax law, you are automatically guilty if HMRC says you are. You’re therefore liable to pay a small fortune in back tax, interest and penalties, unless you have the funds to take on HMRC right the way through to the High Court.

So the reward contractors get for providing the flexible, highly skilled expertise that the UK needs to get itself out of recession, is to have their basic rights ignored, and to have to pay handsomely for the privilege. And this all comes under the legislative banner of ‘fairness in the tax system’.

Since when is it fair to tell someone they can’t be what they want to be? Sounds like the taxman is taking liberties with our basic rights. What do you think?

Published: 24 November 2008

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