IR35 advisers voice concern for non-contractor victims of the off-payroll 'fiasco' exposed by MPs

The litany of problems with IR35 – as unearthed by the Public Accounts Committee – is worrying experts as to how companies, taxpayers and the economy are being affected.

Even taxpayers and the courts are being deemed as losers too of the revised, in-force Intermediaries legislation, given the PAC found it contains “structural problems”.

'IR35 fiasco'

Bauer & Cottrell’s Kate Cottrell explained: “I wonder what the public thinks of the IR35 fiasco the PAC found, with millions in pounds due, already, from publicly-funded bodies.”

The IR35 specialist further told ContractorUK: “Plus, HMRC’s research, guidance and tools, on top of their interpretation of case law, is inadequate and simply wrong.

“Remember, the MPs also found HMRC can’t give robust assessments of tax and NIC due -- and it has no idea at all of IR35’s true implementation cost, to HMRC and everyone else.”

That ‘everyone else’ can be divided into two, easy to identify groups – the public and private sectors.

'Truly unfair'

But both sectors are still reeling from the 2017 and 2021 off-payroll rules, says contractor accountancy firm NumberMill.

The firm’s boss Lousie Rayner told ContractorUK: “The public sector quickly realised it was going to struggle to attract and retain contractors [by determining many as inside IR35].

“So it changed tack quickly -- but now it appears to be being caught out as their assessments of contractors’ IR35 status are being deemed incorrect by HMRC.

“In the private sector, it’s more common for contractors to not gain a rate rise [to offset inside IR35 tax implications] and therefore, they are significantly worse off which is truly unfair. 

“This, combined with the National Insurance Contributions increases in April, and the huge cost of living…are causing nervousness by employers. The result? A stifled market.”

'Dual risk for organisations'

But sectors aside, the fallout for organisations is one and the same.

Matt Fryer, Brookson’s newly appointed managing director said of the PAC’s 21-page report:

“These findings remind us that organisations which are unable to navigate this complex system risk both non-compliance and the loss of talent to competitors, who can offer more attractive and compliant contracts.”

Signalling that there is indeed a whole other research piece to be carried out, specific to end-users who have simply banned personal service companies, is Qdos’ Nicole Slowey.


The IR35 review firm’s operations director, Ms Slowey said: “One aspect [mentioned by the PAC but comparatively] overlooked is the number of businesses that have stopped engaging contractors due to IR35 reform.

"[These businesses] insist they work via umbrella companies or as permanent employees. While a technically compliant approach to reform because these are not blanket IR35 determinations, given IR35 reform can be managed, it’s a needlessly risk-averse strategy. 

“[And] it’s one that deserves focus. Forcing genuine contractors to operate on the payroll damages the flexibility of the labour market considerably.”

'IR35 ruining gig economy and entrepreneurial spirit'

NumberMill’s Ms Rayner agrees, arguing that while the economy and its enterprising-types suffer, the corresponding rules which organisations must abide by can’t even be worked out by the UK’s top judges.

“As the courts struggle to deal with the inconsistency of cases and [effectively] admit that two outcomes, inside and outside IR35, could be derived in many cases, IR35 is ruining the gig economy and people’s entrepreneurial spirit”.

In a statement, the accountant continued to ContractorUK: “In my mind, this is all about to implode, as the off-payroll rules are short-sighted and HMRC’s implementation has been to the detriment of our economy.

“Even with the extra taxes collected, they may well be more than offset by the economic down sides [of IR35], which HMRC have failed to consider in the round.”

'Not fit for purpose'

Equally exasperated is Ms Cottrell, who used to inspect for the tax authority: “Add to the list of problems, that the same income is effectively taxed twice over by HMRC, and in the public sector alone -- which is what the PAC scrutinised, that workers become able to reclaim all the tax they paid, and well; the public sector may end up paying all the tax on workers it incorrectly assessed as self-employed.”

The former tax inspector further told ContractorUK: “So the expression ‘not fit for purpose’ comes to mind with these new IR35 rules, and how HMRC has implemented them. It is time now for someone to listen and to take control.”

Like status specialist Cottrell, tax lawyer Rebecca Seeley Harris was previously enlisted by HM Treasury to help improve its rules on IR35 and employment status.

'What has to happen?'

But the lawyer’s current assessment will disappoint her fellow ex-HMT secondee, if ‘someone listening and taking control’ is the goal.

 “I know I'm not the only one spending time helping the government to understand the labour market, particularly with reference to umbrellas and IR35 but, it would help if there was some progress,” posted Ms Seeley Harris, founder of ReLegal Consulting.

Dispirited, she added: “I ask myself -- what has to happen for the government to make even small incremental changes to make this legislation at least workable on a daily basis?

“There are multiple issues [being ignored] here; IR35, off-payroll working, umbrella companies, the expanding gig economy. But [no action to resolve them]. Something needs to change.”

'Many more years of divisiveness'

Ominously, WTT Consulting’s Graham Webber sounds resigned to IR35 being a problem of the ages.

“The question of inside/outside IR35 is one that has tested many tribunals and courts; generated thousands of pages of commentary and legal decisions -- [and it] will continue to do so for many more years,” he said.

Worse still, perhaps, the much-criticised framework may soon cover or draw in even more parties, just as Mr Webber himself has predicted.

Nigel Nordone, head of tax at Qdos said: “There will be more IR35 enquiries, based on the rise in compliance letters sent to recruiters…[but more crucially], the small business exemption will be removed -- in due course.”


An HMRC spokesperson said the tax authority welcomed the PAC’s “acknowledgement” that the reforms to IR35 “appear to be bringing in more tax revenue.”

In addition, since the committee’s highly critical report, the Revenue has begun trying to gauge IR35 reform impacts on contractors and the labour market, in the shape of external research projects around both the 2017 and 2021 frameworks, ContractorUK understands.

Tax officials have also started fieldwork to assess the short-term impacts of the April 2021 reforms, including looking at changes to the way contractors are engaged. The results are due to published later this year.

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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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