IR35 lobbying – Phillip Lee, MP for Bracknell is out of touch with reality

The Autumn Budget announcement of a consultation into private sector IR35 reforms prompted a call to arms for contractors. Many have raised the issue with their MP in a bid to prevent a decision which could mean considerable damage caused to flexible working in the UK.

Unfortunately, some responses have been particularly disappointing, with certain MPs demonstrating that they aren’t willing to take the necessary steps to protect the interests of their constituents.

One in particular, a response to a contractor from Phillip Lee, MP for Bracknell, looks as if it was copied and pasted straight out of the gospel according to HMRC. Below we dissect Lee’s feeble response, and equip you to challenge your MP if they fail to take action.

A fundamental misunderstanding of IR35

“It is only fair that when two individuals are doing the same job in the same way, they pay broadly the same tax; that is what the off-payroll working rules are designed to achieve.”

Two paragraphs in and our MP has already regurgitated HMRC’s mantra. The same job and therefore same tax argument is nothing more than an HMRC aspiration. It has no basis in law, be it IR35 or any other form of legislation, and for good reason.

If Lee had been doing his job as an MP, he would have researched and found that a proportionally similar amount is already deducted from contractor and permanent employee earnings – something HMRC apparently still hasn’t grasped.

The only shortfall that HMRC suffers is that it can’t claim Employers National Insurance (NI) contributions in a contractor’s case, for the simple fact that they have no employer.

Unfortunately, rather than acknowledging this, Lee instead seems happy providing another passive outlet for HMRC’s mistruths.

The cost of non-compliance – where’s the evidence?

“Non-compliance costs the taxpayer billions of pounds every year, and it has been clear for some time that IR35 isn’t effective enough.”

Lee is right in pointing out that IR35 isn’t effective. But then again Government never gave itself much of a chance introducing legislation where the tax take is dependent on:

  1. Thousands of contractors self-assessing themselves as being ‘employed’
  2. The same contractors paying additional taxes that would have been paid by their employer if they genuinely were employed
  3. The contractors doing so whilst foregoing any employment rights whatsoever

Our MP goes on to quote the supposed cost of non-compliance to taxpayers. This is another figure which HMRC and Government are happy to quote for the purpose of shock value, yet cannot attribute to any tangible research:

“The Government is monitoring the impact of this change [public sector reform], and the initial evidence suggests that it has been successful in improving compliance. However, the cost of non-compliance in the private sector is still growing and will cost taxpayers £1.2bn a year by 2022-23. Therefore, a possible next step would be to extend these reforms to the private sector.”

Another key oversight here is that contractors charge more than their equivalent permanent salary. This is partly because they are compensating for the omission of employment rights, and part due to trends in the free market economy.

HMRC should have figured this out by now, but in the vast majority of cases, if a contractor earns more money than an employee, they also pay more tax.

Don’t fancy writing your own letter? Why not copy and paste?

The next paragraph, which has literally been lifted from the Autumn Budget document, cites the impending Government consultation:

“It is vital that any potential changes take account of the needs of the businesses and individuals who would be expected to implement them. That is why the Government has said it will carefully consult on reform in the private sector, drawing on the experience of the public sector reforms, including through external research it has already commissioned.”

What it fails to mention is the research conducted excludes the input of contractors and contracting stakeholders. Following suit from the events preceding the public sector rollout, it looks as though the research will effectively be used as a smokescreen to help garner support for changes in the private sector.

Lee concludes with a near-correct definition of IR35, contradicting almost everything that came before it:

“IR35 only applies to those who work like employees and would have been employed were they not working through a company. Genuinely self-employed individuals continue to be unaffected.”

To round things off, Lee recites HMRC verbatim once more. Anybody in the contract sector knows that this claim is ludicrous. There is an ever-growing body of evidence proving otherwise, which HMRC and Government continue to ignore.

IR35 private sector reforms - is your MP listening?

Unfortunately, this response is just one of many examples of an MP failing to take the time to address a concern of their constituents. Lee and other MPs need to understand that IR35 presents a serious threat to contractors, UK plc and even HMRC.

It will mean an end to flexible working as we know it, reduce firm’s access to key skills and, contrary to HMRC’s intentions, encourage non-compliance with the tax code.

If your MP, like Lee, is content with reciting HMRC’s flawed logic and its unfounded figures as an alternative to doing their job, place the evidence in front of them. There have been numerous studies by ContractorCalculator and other stakeholders into the crippling impact of the reforms on the public sector and specifically the NHS.

If your MP isn’t listening, you need to make enough noise until they are forced to. Make sure they hear both sides of the story, and not just the taxman’s propaganda.

Published: Tuesday, January 2, 2018

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