Taxman cometh | Is there a way to reduce the harm caused by IR35?

Is there a way to reduce the harm caused by IR35?

Deep Dive

While the HMRC’s confusing legislation has existed in some iteration since 2000, it’s recently been in the news for confounding even the UK Government’s own ministries and employees. We’ve got the DL on IR35…

With the ‘Great Reset’ that happened in workers’ priorities during the pandemic and Brexit, many are turning to freelancing or self-employment as an option. While the numbers, according to the ONS, skyrocketed in 2019, however, due to IR35 changes being implemented in the private sector, the number dropped in 2021 and 2022.

Recently, HMRC also came under fire when it was revealed that even governmental departments couldn’t figure out when the legislation applied, with both the MoJ and DEFRA receiving fines in the hundreds of millions. And while HMRC has insisted in each press release that the rules are necessary to create equity between taxpayers and that it will bring in necessary funds, both of those claims have yet to be realised, with a disparity of 50% between HMRC’s claimed income tax and actual income tax (National Audit Office report, Feb 2022).

A simple explanation of IR35 – does it exist?

Without exaggeration, it took this journalist about a week of reading to understand the legislation well enough to write about it with authority – and, if you’ll forgive the brief switch to the first person, nearly every person I interviewed on this expressed some confusion as to when it applies or not.

The result is that, worried that an HMRC investigation/audit may hit at any time, many companies have simply adopted a blanket approach to the rules, which would be fine with a less murky tax law, but has had the unwanted effect of putting many contractors in a bad way – and meant that the fight for talent has become even harder.

As the brains at contracterweekly.com put it, “IR35 should have a genuine role to play in defending both workers’ rights from unscrupulous employers and the Exchequer from lost tax yield. Unfortunately, the legislation in its original current form fell well short of those aims.

“But this isn’t just about paying the taxman. IR35 also helps disguised employees claim their rightful benefits – like sick pay and maternity leave – which they don’t receive when they’re listed as self-employed.”

“From a company point of view, IR35 may decrease the pool of talent available for a position”

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