Simplifying the thorny issue of IR35 - what do you need to know right now?

Since 2000, HR professionals have been dealing with a piece of tax law known as IR35 – and since that time the pain and frustration with its operation has been well documented.

There is no doubt the complexity of the IR35 regime cannot – and should not – be underestimated and the Government has started a review process that is trying to simplify this piece of the law.

The claim from HMRC is that the changes will ‘level the playing field’ when it comes to taxation paid for and by both employees and contractors and that this will help balance the taxation system.

So why is it so important for HR professionals today?

In principle, a simplification is welcomed by almost everyone who deals with IR35, however, there is widespread concern within the recruitment market that this particular review is happening in isolation, instead of being part of an overall strategy that looks at employment status generally.

As part of the discussion document launched by the Government (that may lead to a consultation document if Ministers decide to push ahead with reform), Resource Management and its parent company Resource Solutions Group offer the following thoughts:

1. Being an ‘employee’ and an independent ‘contractor’ is an entirely different model of working – each comes with different risks, rights and rewards attaching to them. Removing one these differences, such as tax treatment, while leaving the others in place, e.g. extensive rights and protections for employees and none for contractors, will increase not decrease inequality
2. In terms of the revenue that HMRC believes it is losing, there are better and more effective ways to address the perceived issues. For example, the new Intermediaries Reporting legislation that has just come into effect will provide HMRC with a wealth of data. Such information could be used to analyse the market, assess where there are problems and seek to address those problems either thematically or by sector.
3. Large parts of the UK’s vital economic sectors, such as IT, financial services and business change legitimately use independent contractors and they could be unfairly impacted by any reform which applies across the market.

It might sometimes be a complex issue but the Government cannot afford to lose sight of the fact that large parts of the contracting market are legitimately operating as self employed contractors and should not be treated as if they are employees of the person who hires them.

If this is not properly taken account of there is a significant risk that any changes introduced will  damage the independent contracting market – and by extension, UK PLC.

If you want to have your say or find out more information about the government’s plans, visit: https://www.gov.uk/government/consultations/intermediaries-legislation-ir35-discussion-document

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