IR35 refers to the United Kingdom’s anti-avoidance tax legislation designed to tax ‘disguised’ employment at a rate similar to employment. In this context, “disguised employees” means workers who receive payments from a client via an intermediary, for example, their own limited company, and whose relationship with their client is such that had they been paid directly they would be employees of the client.
The problem with the IR35 legislation is that the hues and cries of tax avoidance are mostly unfounded. Most contract job advertisement these days have been blanket assessed as being inside of IR35 i.e. contractors are meant to pay taxes as if they were employees. This malady is further heightened because ‘inside IR35’ contractors pay both employees and employers national insurance contributions, pay umbrella company charges, apprenticeship levy and other admin costs with no employment rights. Many umbrella companies are a disaster waiting to happen, think Giant Group ransomware attack and the data compromise which affected payroll processing for their contractor population.
To add pepper to this injury, there are no statutory regulations in place to ensure umbrella companies are held to standards, especially from the tax authorities.
Contractors who have been blanket assessed as being inside IR35 do not have any job security, and if holidays are taken, it leads to a reduction of income or no income at all. The crux of the matter, it’s the 21st century in a developed economy which the UK prides itself as. The tax authorities in the UK, which is the HMRC, have not found it worthy to put mechanisms in place to find a tax net or categorisation for contractors rather than treat them unfairly, which has led to a mass exodus of workforce from the UK. We cannot detach the HGV driver’s shortage from the IR35 charade and its impact on the everyday life of the contracting workforce.
Think about the poor mental health of many contractors who are now in dire financial straits because of a lack of clarity on what the future holds. Imagine working on a short-term contract and your ability to pay your rents/mortgage repayments lies on whether you get the next contract beggars’ belief. Many contractors no longer have the buffer which being on an outside IR35 contract provides. The rhetoric of contractors not paying enough taxes is only a figment of the imagination.
Some contractors now have to take on a second job to get by. Boris Johnson and Rishi Sunak’s levelling up of the economy is indeed levelling up small businesses into obscurity. Just over a year after many small businesses were provided with Bounce Back Loans to survive through the pandemic that offered limited companies no genuine support. The conservative government is protecting their rich friends, donors and big corporations while driving limited companies into extinction through policies that are either not well thought out or hastily implemented.
Solution: As we have many employers and agencies who are not willing to give contractors the flexibility that the job they do warrants through a statement of work or a genuine IR35 assessment. The crisis which IR35 portends will continue to affect the UK economy in astronomical dimensions. After my plumber charges me for repair work, I do not tell them how to do their job. I pay them for the job and they bring their expertise to resolve a problem. That is how the working arrangement should be, otherwise, the HMRC should proffer a separate tax arrangement for contractors to be commensurate with the risks involved.
Blanket assessing the workforce as inside IR35 is a looming danger and our political and thought leaders are all quiet, as this does not in any way impact them. There is a whirlwind of distress in town, which is the zero rights employees’ farce which has taken more than a few prisoners.
Notes: If you’re currently working on a job inside IR35, consider taking up salary sacrifice and save into a private pension to give you some respite from the chaos of the current situation.
Photo by Colin Watts on Unsplash