Few are holding out any hope that the new Prime Minister’s vow to review IR35 will materialise, according to a recent poll we carried out.
This showed that as many as 94% of individuals think that Liz Truss’s pledge to review the IR35 rules is merely an ‘empty promise’.
But let’s say, for a moment, that it does go ahead. If the IR35 legislation is reviewed yet again, which areas should the new leader of the Conservative Party focus on?
In this article, we highlight the key issues which continue to plague IR35 and the roll-out of reform in both the public and private sectors.
It’s crucial that the tax office’s Check Employment Status for Tax (CEST) tool is scrutinised.
Despite the technology having been in use for more than five years – and its answers decisive in hundreds of thousands of IR35 status determinations – CEST remains fundamentally flawed.
Impacted by a range of issues – from its failure to align with IR35 case law, its findings dismissed at numerous IR35 tribunals and an inability to provide an answer 20% of the time, it’s clear that CEST is unfit for purpose.
The issue of zero rights employment – brought into sharp focus following IR35 reform – remains significant today.
Zero rights employment occurs when a contractor operates inside IR35, where they are taxed as an employee but do not receive employment rights in return. This has become more frequent as a direct result of IR35 reform, with a greater number of contractors placed inside IR35 by businesses.
Prior to Liz Truss becoming Prime Minister the government recently – and disappointingly – confirmed it had no plans to abolish zero rights employment, which would be prevented if tax status and employment status were aligned.
However, with a new Prime Minister in place, the newly assembled Cabinet can expect to face fresh calls for the end of this arrangement.
When the impact of IR35 reform is discussed, many contractors refer to blanket IR35 determinations made by certain businesses.
While it’s the exception rather than the rule, this non-compliant approach to IR35 – which sees large numbers of contractors engaged by one business placed inside the legislation irrespective of their true IR35 status – remains a big problem.
Blanket IR35 determinations have left thousands of genuine contractors with no option but to accept inside IR35 projects or have their contracts terminated.
With this in mind, it’s key that any IR35 review investigates this poor practice.
Often confused with blanket IR35 determinations are contractor bans, which are arguably just as damaging – albeit compliant.
This needlessly risk-averse strategy is within the confines of the law, as swapping out contractors for umbrella workers or employees (both of whom are taxed under PAYE) means that IR35 is no longer a consideration.
However, the promised review must consider the implications resulting from these bans, not only on contractors but also on labour market flexibility and the wider economy.
Despite concerns remaining over how well-equipped businesses are to make accurate IR35 determinations, the odds are stacked against contractors when challenging incorrect status decisions.
Currently, the HMRC-advised ‘client-led disagreement process’ is managed by the client, who can simply shut down an appeal if they see fit. As things stand, contractors do not have a fair shot at overturning unfair assessments.
Many industry experts, including Qdos, have stressed the need for an independent appeals process and without doubt, it should be an area of focus in the IR35 review.
It’s important to stress that these five recommendations are not new concerns. Both the government and HMRC are well aware of them.
And while the numerous reviews, consultations and inquiries into IR35 thus far have led to little overall, with a new Prime Minister in place, contractors are making clear that an upcoming review must result in change.
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