That IR35 is a desperately unfair piece of legislation is no longer a matter for debate. We’ve recently had confirmed by a leading contractor legal expert that, since the Murphy ruling in 2001, there have been no grounds for contractors inside IR35 to claim the employment rights their additional taxes should mean they deserve. The same expert will confirm in an exclusive article to be published next week that even if an agency lies to a contractor about the IR35 status of a contract, the contractor has a virtually impossible task to sue for damages if HMRC says the contract is outside IR35 and demands a lot more tax.
Yep, IR35 sucks. Tell us something we don’t all already know. But at least IR35 is the devil we know, whereas the danger of demanding that our new government abolishes the tax is that it will be replaced by something far, far worse. After all, that government is going to want to get the same ‘contractor tax revenues’ as, for example, the half a billion pounds in income tax and National Insurance Contributions it gets each year just from the top half a dozen umbrella companies who represent about 50,000 contractors. A real fear is that those contractors genuinely outside IR35 who work hard to stay that way might well end up paying even more tax as a result of IR35 being abolished.
Let’s face it, IR35 is not going to change until we see a review of small business taxation, and that won’t happen until well into the new parliament, if ever, because just like small businesses in general, reforming small business taxation is just not high on anyone’s priority list. Anyway, it is so finely interwoven that any changes to it would take an age to implement. And, as I’ve hinted above, any new tax laws introduced when the country is so indebted could well be even more draconian than those we currently have.
Another option mooted has been to define exactly what a contractor is in statute. Let’s think about that one. If us contractors were all neatly put in the same room with the word ‘contractor’ on the door, then we shouldn’t be surprised if the Chancellor starts knocking on the door and asking for more. So maybe an official definition of what a ‘contractor’ is would not be such a great alternative to IR35, after all.
IR35 is unfair, but we have proved we can live with it, and even thrive under it. So before we do our own knocking on the new Chancellor’s door and demanding that IR35 be scrapped, let’s be aware that the law of unintended consequences might produce a slathering beast behind that door at No 11. And that beast might have a bite far worse than its bark, eating up more of our income than anything that came before it.