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IR35

Industry holds its breath as IR35 discussion phase comes to an end

Industry holds its breath as IR35 discussion phase comes to an end

A couple of weeks ago, I summarised the research, industry discussions and viewpoints that went into the Intouch response to HMRC’s Employment Intermediaries and Tax Relief for Travel and Subsistence (T&S) consultation document.

 

The other hot topic on contractor’s lips has been the suggested reforms to Intermediaries Legislation (IR35), proposed in HMRC’s discussion document. Although at different stages, it is important to be aware of both documents as the changes to T&S will impact assessment of IR35 going forward. If you haven’t already, it’s worth reading my previous post to help set the scene.

 

Unlike the Travel and Subsistence consultation document – which is further down the line and gives us a steer of the likely direction things will go – the IR35 discussion document is very much ‘work in progress’. That puts us in a strong position as there is still a fight to be won.

 

At Intouch, our focus since the proposed changes were announced in July 2015 has been to gather industry opinion, contribute to the debate and advise our clients on establishing their IR35 position.

 

This summer might well come to be known as The Summer of Discontent for contractors, for the overwhelming viewpoints expressed during the discussion phase were of criticism and concern for the future.

 

This is why our response to the discussion document is so crucial. It is a chance for the views and ideas of contractors and all those involved in the temporary contract industry to be heard by the decision-makers currently deciding which changes to take forward. It also provides a platform to put forward suggestions for alternative recommendations.

 

We fully support measures intended to promote compliance and level the playing field and understand the challenges facing HMRC. As we emphasised in our response, the majority of PSC workers wish to be compliant, and indeed are, and pay the right amount of tax on time.

 

However, having reviewed the proposed reforms at length, our primary concern is that HMRC has not truly grasped the complexity and variable nature of the temporary contract landscape.

 

As I warned in a previous article, ‘Unlimited Shades of Grey as HMRC closes in on IR35 abusers,’ any over simplified change to the way PSCs are taxed could have the unintended consequence of wrongly applying employment tax to the genuinely self-employed PSC worker.

 

Whilst we have always agreed that the ‘bad eggs’ who deliberately ignore or manipulate IR35 legislation to take unfair advantage of the system should be flushed out, the current HMRC proposals fail to protect the vital role played by PSCs in boosting UK plc.

 

We are not alone in voicing these concerns. In a recent article, ‘Is HMRC listening?’, FSCA CEO Julia Kermode, says the proposed approach by HMRC to specifically target employment intermediaries on claiming tax relief is, “disproportionate, based on false understanding of the sector and will have a significant impact of the flexible workforce in the UK.”

 

As outlined in contractor news sites such as Contractor Weekly, the fear is that contractor rates will start to rise  to cover the differential in tax paid.

 

So what’s the answer? Our response document concludes with a set of guiding principles and recommendations we believe will make IR35 more effective in protecting the Exchequer. A summary review of the Intouch response to both the IR35 discussion and Travel and Subsistence consultation documents can be found in our IR35 and T&S: Proposed changes ebrief.

 

Last month, The Chartered Institute of Taxation (CIOT) put forward a new approach to tackling IR35 abusers, which rejects the ‘Supervision, Direction or Control’ test. CIOT believe this is unlikely to improve compliance and suggests a better alternative could be to introduce an annual reporting obligation on organisations that engage contractors. This would involve the PSC making an initial assessment as to whether or not it considers that IR35 applies and the engager then reporting to HMRC whether or not it agrees.

 

Now the deadline for responding has passed and the industry can do no more but wait to see whether our voices were heard. I expect the IR35 consultation document that follows next will have scant regard to the input from industry experts and fail to explore or even contemplate being distracted from the ultimate goal of increasing the “tax take”.

 

It may try and align the tests for determining employment status with those for claiming travel expenses which, in my opinion, would be a huge mistake. HMRC are trying to solve a difficult problem with a simple solution but if a simple solution were the best solution it would have been obvious years ago.

 

So as the industry holds its breath, it is important to stay calm and try not to panic about the future for PSCs. Although it is of course a consideration, there is more to life than tax relief and most contractors don’t work through a Limited Company for this reason alone.

 

Working through a Limited Company opens up a host of other benefits such as freedom and control over working conditions, flexibility around family life and of course the possibility of securing a higher day rate. A more detailed overview of the benefits to be enjoyed from setting up a Limited Company can be found in our popular guide Limited Company or Umbrella – which is the right choice for you?

 

If you are unsure where you stand in the debate, or would like to know more about how the proposed may affect you, our expert contractor accountants can help you. Speak to us today on 01202 375 562 or email enquiries@intouchaccounting.com.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.