London, Wednesday 9th February 2011 – IR35 is here to stay for the medium term, will be policed more effectively by HMRC, and will only ‘go away’ when more fundamental changes to the UK’s tax system make IR35 irrelevant. Those are the startling conclusions of a new white paper by Dave Chaplin of ContractorCalculator, the leading independent website for the UK contracting industry.
IR35 Solutions: Review of the current legislation and future options examines the history of IR35, how its original objectives to identify ‘disguised employees’ and tax them accordingly have fallen by the wayside. It looks at the new context offered by the Coalition Government and why it can never work in its current form. “The only solution is wholesale tax reform that will render the taxation distinction between workers and the self-employed irrelevant,” says the white paper’s author, ContractorCalculator CEO Dave Chaplin.
“The UK tax system fails 21st Century work patterns where, in reality, the distinction between the employed and contractors can be as absurd as a job title and access to the canteen,” explains Chaplin. “HMRC’s tests of employment, which underpin the effective enforcement of IR35 in its current form, have clearly not evolved at the same pace as the UK’s flexible, highly skilled, knowledge-based workforce. But analysis shows that yet more ‘sticking plasters’ won’t work, so IR35 should stay in place until other tax changes mean it is no longer needed.”
Chaplin continues: “An in-depth look at the global approach to ‘disguised employment’ suggests that no other nation has yet created a solution that ensures workers, regardless of their employment status, pay a fair amount of tax. Only when legislators recognise that the tax distinction between employed and non-employed workers is artificial, and introduce root and branch reform, will IR35 become irrelevant.”
IR35 was introduced in 1999 by the then Chancellor Gordon Brown. There was little consultation and the few original measures to protect affected workers never made it into legislation, as a result of effective lobbying. It has since become infamous for its inconsistency, ambiguity and uncertainty, universally reviled by accountants and tax experts as failing to provide contractors with certainty in their tax affairs. Many feel it is used as a blunt instrument by HMRC to ‘punish’ highly skilled knowledge-based entrepreneurs for their success.
“The conclusions of our analysis suggest that in the short to medium term IR35 is likely to be better enforced by an HMRC that needs to draw in every penny it can to the Exchequer,” suggests Chaplin. “Frankly, I hope IR35 is not changed or replaced. We don’t need any more sticking plasters. What we need now are new guidelines to provide genuine contractors with the certainty they require, and for HMRC to use its expertise and information assets to target those disguised employees who are clearly not in business.”
He concludes: “In the longer term, IR35 could simply disappear if the Coalition Government holds its nerve and the fundamental issues of taxation on income are finally addressed.”
IR35 Solutions: Review of the current legislation and future options is available free:
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Who We Are
ContractorCalculator is a leading independent website for the UK contracting industry – most of whom are highly skilled knowledge workers in information technology, telecoms, engineering, electronics, and construction.
There are 1.4 million such workers in the UK today who prefer to run their own businesses and work under contract rather than become employees of specific companies. Their contribution to the economy is crucial to keeping UK businesses competitive.
ContractorCalculator, which is independently audited by ABCe, has over 100,000 unique visitors per month. Its last audit showed the site was visited by 110,684 unique users/browsers in September 2010.
To arrange an interview with CEO Dave Chaplin please contact us.