IR35: New Developments

August 1, 2018

Since 2000, IR35 legislation has been a concern for contractors in the UK. With the introduction of the legislation into the public sector in 2017, this off-payroll tax initiative has continued to cause controversy amongst contracting authorities.

Following on from this, HMRC’s intention to extend the legislation into the private sector has been met with considerable criticism. With a consultation of private sector employers underway since May 2018, HMRC are awaiting the results of this survey, along with the associated views towards the extension of this tax legislation.

Surveys conducted earlier this year, have revealed some of the negative consequences due to the introduction of IR35 into the public sector. As reported by Computer Weeklyand People Management, ContractorCalculator’s survey of 2000 public and private sector employees, found that IR35 had made a negative impact on this employment sector, with 73% of participants raising their contract rates as a result. Such changes will no doubt impact on the productivity of this sector, as organisations already struggle to find the right people for projects and jobs at a reasonable cost.

Harvey Nash Recruitment Solutions also conducted a study earlier in 2018. The survey revealed that up to 49% of participants now sought contracts within the private sector alone, whilst 80% believed the legislation had made a negative impact on their sector.

While such surveys have highlighted the impact of IR35 reforms on the public sector in 2017, HMRC have failed to deal with these criticisms effectively. Indeed, even though they released IFF conducted research earlier this year, suggesting that there had been “minimal impact” upon the public sector after the introduction of IR35 legislation, HMRC still faces heavy criticism. Alongside this, HMRC this week announced that their controversial CEST (Check Employment Status for Tax) tool omitted MoO (Mutuality of Obligation), therefore infuriating contractors. Their reasoning for this being that they will assume MoO should be placed within a contract beforehand.

Mutuality of Obligation (MoO) could be regarded as a legally vague concept, particularly regarding the concept inside IR35 legislation. Within a contract made between an organisation (the client) and a contractor, if a MoO is made, the client will have an obligation to provide future work for the contractor, also meaning the contractor will be obligated to work for that client in the future.

This admission that MoO is omitted from the CEST tool has led to considerable criticism from a number of significant figures from the recruitment, public and private sectors. For example, Crystal Umbrella has reported that Qdos Contractor CEO, Seb Maley, has criticised this move by HMRC, arguing that it is simply “wrong” to assume MoO is included in all contracts.

ContractorCalculator’s CEO, Dave Chaplin, furthered such criticisms, arguing that this new off-payroll legislation has “descended into a farce”, as HMRC struggle to ensure that the right people are penalised for wrongdoing regarding IR35. Clearly this move has caused concern amongst the contractor community, particularly ahead of HMRC’s intention to extend IR35 legislation into the private sector.

Indeed, as The Register reports, Julia Kermode (Chief Executive of the FCSA – Freelancer and Contractor Services Association) has argued that the omission of MoO from IR35 legislation is important, as it conveys how IR35’s CEST tool is “fundamentally flawed”, arguing that any extension of IR35 to the private sector is “unthinkable” until this is resolved.

This echoes criticism from Qdos Contractor CEO, Seb Maley, who argued in June 2018 that the chaos ensued by IR35 legislation needed to be resolved before such legislation could be extended into the private sector.

Clearly, as 2018 moves on, IR35 continues to cause controversy, alongside HMRC’s reluctancy to listen to contracting authorities. With their public consultation of the private sector due to finish in the coming months, Harvey Nash Recruitment Solutions, along with other recruiting and contracting authorities, will wait with baited breath for the results.

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