Conservatives IR35 Contractors Claim
The Conservatives IR35 contractors claim as stated by Treasury Minister Jess Norman is completely inaccurate. He claimed, in an answer to an IR35 question in Parliament that there is only 10% compliance in this area. HMRC made exactly the same claim just a few weeks later. So, the Conservative Government Minister believes that 10 times as many contractors should be paying PAYE under IR35 than are currently paying it.
However, this is not backed up by the judges in the courts and the employment tribunals.
Questions on the Conservatives IR35 Contractor Claim
- How Many Contractors do the Conservatives and HMRC think are not IR35 compliant?
- How many IR35 cases do HMRC Win and Lose?
- Who are correct, the Government or the courts?
- Have the IR35 laws changed?
- What is the Conservatives IR35 Contractors Claim on HMRC’s IR35 test?
- What is HMRC’s promise to contractors and companies on IR35?
- Do the Conservatives plan further IR35 attacks on contractors?
- Will the Conservatives have to bring in fresh IR35 legislation?
- Will the courts favour the Government or contractors after April 2020?
How Many Contractors Do the Conservatives and HMRC Think Are Not IR35 Compliant
When Jesse Norman and HMRC say that only 10% of contractors in this area are compliant in this area, they must mean the IR35 area. IR35 is a l.aw enacted in 1999. So, they must mean that 90% of all contractors are not compliant with this law.
However, the Government and HMRC are not the judges of what is inside or outside current laws. That judgment is made by our judges and courts and with our employment tribunals.
How Many IR35 Cases Do HMRC Win and Lose
The fact is that HMRC lose 80% of the cases that go to the employment tribunals. The judges come down mainly on the side of contractors. Remember that HMRC can cherry pick which contractors they think are worth investigating out of the hundreds of thousands of contractors in the UK.
So, this must mean that the judges and the courts believe that a bare minimum of 80% of contractors are compliant with the IR35 laws. As HMRC don’t fight cases they think they will lose, you would have to say that at least 90% of contractors would be found IR35 compliant by the courts and employment tribunals if their cases were ever brought there.
This is the total opposite of what the Government and HMRC are claiming.
While the Government claim that only 10% of contractors are compliant with IR35 the court verdicts show that the judges and commissioners believe at least 80% of contractors are IR35 compliant.
So Who Are Correct, the Government or the Courts
So, who is correct?
The judges and the courts of course.
Governments make laws. It’s the courts’ job to say who is breaking them and who is keeping them.
And the judges and commissioners have come down solidly in contractors’ favour. The Conservatives IR35 contractors claim is incorrect.
Have the IR35 Laws Changed
The Conservative Government admit that the IR35 laws have not changed since they first hit the statute book in 1999.
It’s just the way the law is implemented that has changed. Previously contractors decided their own IR35 statuses. Now the hiring company must do that and whoever pays the contractor must extract the PAYE tax and National Insurance of those who are inside IR35.
What is the Conservatives IR35 Contractors Claim on HMRC’s IR35 Test
Also, HMRC have created what they believe is the definitive TR35 test It’s called Check Employment Status for Tax (CEST). Most IR35 experts believe this is deeply flawed. So, many big consultancies and Accountancy firms have created their own.
HMRC’s IR35 test has no basis in law. It i just HMRC’s idea of what IR35 is. And their judgement on which contractors are inside IR35 and which not has not been very good.
What is HMRC’s Promise to Contractors and Companies on IR35
However, HMRC have said that if a contractor passes their IR35 test then they will stand by that result even if the contractor is later judged to be inside IR35.
That’s a powerful incentive for companies to use HMRC’s test as the definitive one. That’s even if it s far from that.
So, the Government and HMRC say that 90% of contractors are non-compliant with IR35 but the judges and commissioners say that 80% of contractors that they have encountered ARE compliant with IR35.
Even HMRC’s own IR35 test shows 54% of contractors compliant with IR35.
So, who will win?
The courts of course.
Do the Conservatives Plan Further IR35 Attacks on Contractors
According to the Queen’s Speech “We will increase fairness and and flexibility in the labour market by stopping employers and workers experiencing significantly different outcomes from flexible forms of working.”
Although the subsequent budget was scrapped we can assume that Boris Johnson and the Conservatives plan to do just that in any Budget after they get re-elected.
Will the Conservatives Have to Bring in Fresh IR35 Legislation
However, if they are going to do that they will have to bring in fresh IR35 legislation. They will have to fight it through Parliament.
That’s because the judges are judging that the current IR35 laws make at least 80% of contractors outside IR35. The courts are likely to continue to favour contractors when they look at the current IR35 law.
After April 2020 it will be companies joined by the big accountancy consultancies who will be matched up with HMRC.
Will the Courts Favour the Government or Contractors After April 2020
Again the courts are likely to favour those companies over HMRC’s interpretation of current IR35 laws.
So, those that represent contractors should prepare now for fresh IR35 legislation being brought before parliament after a Conservative victory which is looking likely. They must prepare for the fight now!
The Conservatives IR35 Contractors claim is rubbish as we have shown here.
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