Contractor sector attacks IR35 proposals

The reception from contracting experts to a HMRC consultation on reforming IR35 for personal service companies in the public sector is overwhelmingly negative.

The sheer nature of contracting for state bodies means the two questions engagers must ask to test if IR35 applies are unfair, as they will invariably result in affirmative answers, says Qdos.

“[In the public sector, there are] tendencies to[wards] stricter confidentiality and security measures,” says the firm, an employment status advisory which runs IR35 contract reviews.

“The two questions [about Personal Service and Control that HMRC is proposing]… are asked in a specific manner that would almost certainly always put the contract ‘under scope.’”     

The firm also criticised the HMRC document for being inconsiderate to PSC owners more generally, saying it “appears to fail to…understand limited company contractors at all.”

But Qdos’ Gemma Cakebread says it does try to pull the wool over their eyes. “A ‘real-time and definitive HMRC view on whether or not the rules apply to a particular engagement,’” is promised, she said, quoting from page 6 of the consultation.

“As a company who has been fighting to defend contractors in IR35 cases for over a decade, the ‘HMRC view’ is not always correct, and so this assumption of the HMRC view being gospel should be a concern”.  

If the current proposals go ahead, the upshot will be that freelance contractors “will simply shun the public sector,” warns IPSE, the Association of Independent Professionals and the Self-Employed.

The UK as a whole will lose out,” the association said, speaking after the publication of the HMRC document. “The only winners will be the large consultancies drafted in [to the public sector to] fill the void.”

Harbouring similar concerns, the Freelancer and Contractor Services Association (FCSA) is surprised that the proposals are being even considered.

[We are] disappointed to read in the consultation paper just out that HMRC is focusing on how to implement the public sector legislation rather than whether it should be implemented at all,” it said.

But now that it is going ahead, the framework should still be challenged because it is “unfair, unethical and fundamentally wrong,” believes FCSA’s chief executive Julia Kermode. She explained:

“The consultation makes it very clear that employment rights will be outside the scope which means that an individual will be paying tax as an employee but will not automatically have the corresponding statutory employment rights.”

Chris Bryce, chief executive of IPSE, confirmed: “They are proposing to tax freelancers as employees without offering them employment rights,” he said. “This proposal is exploitative.”

The association will shortly express this concern and others it has about the envisioned framework in an exclusive article for ContractorUK, ahead of its reply to the consultation (which closes on August 18th),

Qdos is also going to respond to the HMRC document, and so too is the FCSA. Its CEO, Ms Kermode reflected: “[Let’s] hope we can get them to see reason.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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