Global Tunnelling Experts Ltd suggest alternative IR35 approach
The rollout of IR35 has been the subject of much controversy in British industry, as April 6 2020 will see financial liability for defining the employment status of a freelance worker transfer from the employee to the employer.
The purpose of IR35 is to prevent tax avoidance by contractors and freelancers who are not self-employed under the HMRC definition. Public sector reform to IR35 came into force in April 2017, and these new regulations will apply to medium and large private sector businesses in the UK from this April.
The Conservative government has launched a review into the new rules for private sector contractors, with industry now putting the government under pressure to shelve the plans amid major backlash.
The reason for the hostile response is that employers are now at risk of being out of pocket if HMRC decides a contractor in the same job as a full-time employee must pay similar tax and National Insurance contributions.
As a result, some businesses may well consider stopping the employment of off-payroll staff entirely.
Some industry experts and recruiters have called for the rollout to be postponed, including Seb Malley, CEO of IR35 specialist consultant, Qdos, who has been critical of the decision to seemingly persist with implementing the changes.
Malley said: "While a [government] review is a sign of progress, it doesn’t mean the changes will be scrapped.
"HMRC itself has said this review is to make sure reform is implemented smoothly, suggesting the government has every intention of rolling out needless change irrespective of any findings.
"Taking everything into consideration, our advice to contractors, agencies and private sector businesses is to assume changes will be enforced and prepare immediately."
Adopting a more scathing stance, Malley added: “That HMRC is still under the illusion that IR35 reform only affects those ‘working like employees’ also shows just how out of touch the government is with regards to the true impact of the changes.
“The government also claim those who don’t comply with IR35 pay significantly less income tax and NICs than an equivalent employee.
“This is misleading. HMRC must stop painting the picture that it is the worker dodging tax.”
However, Kevin Browning, managing director of Global Tunnelling Experts UK Limited, a Bristol based business that supplies personnel for infrastructure, does not believe that the government should give in to industry pressure and halt the IR35 rollout.
Speaking to The Parliamentary Review, Browning suggested that the introduction of new IR35 rules could be bedded in by deducting National Insurance at source.
Browning said: “With regards to IR35, I would like to suggest that rather than the Government be bullied into shelving the plan to introduce it, we could step it in, by firstly deducting National Insurance at source.
“This would go a long way towards individuals being able to pay voluntary National Insurance contributions, under the current self-employed system and providing the much needed cash injection required to build our NHS."
This, Browning believes, would then give a "clear indication" to industry that "taxing at source" would be the next step to come in.
Whether Browning's recommendations are heeded remains to be seen. Browning and Global Tunnelling Experts Ltd's original article for The Parliamentary Review may be accessed here.