Contractors IR35 Battle Lost
Contractors IR35 battle is lost. There is no point now in trying to get the Government to scrap the coming changes. After all, IPSE (then the PCG) was set up 20 years ago with the sole purpose of getting IR35 scrapped. I wonder how they think they are doing.
However, after losing several High Court cases, the Professional Contractors Group decided to fight an attritional battle. They successfully backed contractors at employment tribunals. The contractors won most of those.
Contractor Questions on IR35 Battle
- Are the Government going to have the IR35 review they promised?
- Are contractors winning or losing the IR35 battle?
- How many contractors do the Government believe are compliant with IR35?
- Do the Government believe contractors are paying their fair amount of tax?
- What can contractors achieve in this IR35 battle?
- What should the Government do about blanket bans on PSC contractors?
- Are companies safe if they use HMRC’s CEST test on contractors?
- Is HMRC’s IR35 Test CEST fit for purpose?
- Is the CEST tool an accurate assessment of a contractor’s employment status?
- What concessions can contractors get from the Government in the IR35 battle?
Are the Government going to have the IR35 review they promised
There is currently a review of IR35 going on. This was promised just prior to the election after Labour, the Lib Dems and the SNP promised a review.
As was very predictable, they announced after the election that the review would not be about the changes but about how they can implement the changes more easily.
The reason that the IR35 changes will not be scrapped is that contractors have lost the argument. They shouldn’t have lost the argument – but they have.
Are contractors winning or losing the IR35 battle
All these IR35 changes have come about because contractors groups have not convinced the Government of the righteousness of their case.
How do we know they have lost the IR35 argument?
Just listen to what the Government is saying.
Theresa May and Philip Hammond, who decided to implement the IR35 changes in the private sector said “It is an unfair anomaly that a self employed person who earns £100,000 a year pays less tax than an employee earning £100,000 a year.”
We know that this is not comparing like with like and the case should have been easy to make.
How many contractors do the Government believe are compliant with IR35
Also, Treasury Minister, Jesse Norman, said recently when answering a question about IR35 in Parliament that there was “only 10% compliance in this area.”
How could there be only 10% compliance when HMRC’s own tool shows that 54% of those who sit the test are judged to be outside IR35.
A reader wrote to his MP, William Buckland, about IR35. The MP said he was delighted that the Government are holding an IR35 review and praised the flexible economy. However, he ended the letter with “While I believe it is important that everyone pays the right amount of tax, government should at the same time be on the side of entrepreneurs and businesses. “
Do the Government believe contractors are paying their fair amount of tax
There is a belief in the Government and its MPs that the self employed are not paying their fair amount of tax. This is because contractors representatives have lost the argument when they should not have.
If contractors representatives ever want to stop the constant beatings up from this Government then they have to change their minds on this. Why would the Government scrap the new IR35 rules when they believe that contractors are not paying “the right amount of tax”?
So, the IR35 battle has been lost and the IR35 change are not going to be scrapped. But contractors still have the opportunity to get it changed.
What can contractors achieve in this IR35 battle
Contractors can appeal to their sense of fair play (which they might and might not have).
There are two areas of unfairness.
- The blanket banning of contractors who operate via personal service companies when tests show that many of these contractors are outside IR35
- The unfairness of HMRC’s Check Employment Status for Tax tool
What should the Government do about blanket bans on PSC contractors
I don’t think that the Government intended companies to stop hiring contractors using personal service companies.
Indeed they said that companies could not blanket assess contractors. All contractors would have to be assessed by the hiring company to see if the contractors were inside IR35 or outside IR35.
They could, but didn’t have to, use HMRC’s Check Employment Status for Tax test. HMRC guaranteed the results of the tests even if the contractor was later judged to be inside IR35. There was one proviso. The data entered had to be accurate.
Are companies safe if they use HMRC’s CEST test on contractors
And, despite the NHS testing contractors using the CEST test, they have been fined £4.3m for misuse of the CEST test.
Who decided that CEST test had been misused?
Why, it was HMRC.
They are the prosecutors, the judge and the jury.
Oh, and they also control the Appeals process.
So contractors should ask that blanket banning contractors who use personal service companies should be stopped.
Is HMRC’s IR35 Test CEST fit for purpose
Contractors should also demand that the Check Employment Status for Tax tool that HMRC set up should itself be assessed for fitness for purpose.
It is clearly not at the moment.
The tool should be assessed to see if it fits current IR35 laws. It should also be assessed to make sure it reflects employment tribunal verdicts which HMRC have lost.
For instance Sainsbury’s recently tested their contractors using the CEST tool and found them virtually all inside IR35 and for all the same reasons.
One of the three reasons given was that they had never used a substitute.
However, the verdict in the HMRC / Lime-IT (Lisa Fernley) case said that the burden of proof that the contractor would not use a substitute lay with HMRC. Just because the contractor hadn’t doesn’t mean to say she wouldn’t have.
If Sainsbury’s are failing their contractors on that then the tool cannot have been updated to reflect the Lime-IT verdict.
Is the CEST tool an accurate assessment of a contractor’s employment status
If the CEST tool is to be the main arbiter of whether a contractor is outside or inside IR35 then it must be an accurate reflection of the law and not just HMRC’s view of it.
So, there should be an independent assessment of the CEST tool. When I say independent I don’t mean by one of the big consultancies who have something to gain if the contracting profession is abolished.
What concessions can contractors get from the Government in the IR35 battle
Someone once said that politics is the art of the possible.
From statements by Government ministers I don’t think it is possible to get the IR35 changes pulled.
So, contractors should try to achieve what is possible and is unfair in this IR35 battle.
The Government say that it is an “unfair anomaly that a self employed person earning £100,000 a year pays less tax than an employee earning £100,000 a year”.
Well it is an unfair anomaly that companies are forcing contractors who would test outside IR35 to operate inside IR35 and have to pay PAYE.
It’s an unfair anomaly that the tool used to assess contractor up and down the land is not a fair assessment of a contractor’s IR35 status. It also doesn’t incorporate recent tribunal verdicts which HMRC have lost.
If the Government is seeking fairness it should take a look at these two anomalies
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