IR35 expert cautions contractors ahead of Finance Bill Report Stage

Contractors are being cautioned by an IR35 expert not to expect an impassioned debate by MPs in the House of Commons to translate into a reprieve from 2021’s off-payroll rules.

Matt Fryer, head of legal services at Brookson Legal, says only a “significant revolt” by the MPs at the debate today could force the government into a “U-turn” on the April framework.

So improvements to how the rules are going to be introduced next year, “hopefully informed by the Lords’ report,” are much more likely than removal of the clause, Mr Fryer says.

'Concessions'

But the chartered tax adviser has his own improvements he wants to make to the legislation – improvements, he says, which would still represent “concessions” from the government.

And concessions which contractors want, more so perhaps than yet another delay to the IR35 reform’s start date.

“What is clear, is that the private sector has had more than enough time to prepare, certainly far more than the public sector,” Mr Fryer said, responding to questions from ContractorUK.

“But there still appears to be no mechanism for HMRC to police or enforce a penalty for an incorrect ‘inside’ IR35 determination by an end-client. 

“This creates an inequitable risk profile which will result in some end-hirers taking the path of least resistance and blanketing all off-payroll contracts…This is contractors’ biggest fear”.

'Concerns'

Speaking yesterday, the adviser pointed out that during a Ways and Means amendment debate, the Treasury gave the helpful confirmation that such blanketing is not compliant.

Jesse Norman, the financial secretary to the Treasury said at the time: “[My MP] colleagues have concerns that organisations might take a blanket approach to status determinations.

“[But] the government have been very clear that determinations must be based on an individual’s contractual terms and actual working arrangements.”

'Blanket approach'

Yet where this “blanket approach” sees an end-hirer engage their entire PSC workforce on an ‘inside’ IR35 basis, then the options for contractors are few and far between, Mr Fryer says.

“As far as I can see,” he said, “the only practical options currently afforded to a contractor are to submit a challenge -- as is their right under the legislation. Or to turn down the contract.”

Such blanketing hit the public sector before and after the forerunner to next year’s rules were introduced -- “a testament to the poor education and guidance provided  [by the government] in advance of the changes.”

'Lessons to be learned'

“Mr Norman has himself promised a report into the introduction in the public sector [of these rules],” added the Brookson Legal expert.

“And we very much hope that this will be delivered in time for lessons to be learned.

“But to my mind, the only sensible way through this [more immediately] is for contractors to start talking to their clients, to help them to understand the process by which an accurate assessment can be made.”

'Refocus lobbying efforts, and don't wait and see'

Then, asked if he believes that contractors subject to blanketing should refer their client or agent to the Treasury minister’s comments, and whether the campaigns against IR35 reform have been thorough, Mr Fryer answered:

“Essentially, contractors should now start to focus their lobbying efforts towards their clients and agencies, to ensure they can steer them away from making and enforcing a blanket decision.”

One way to give that steer is to direct such parties to specialists who insist that the status decision is made with ‘reasonable care’ -- as the 2021 legislation requires, the adviser said, before adding an alert:

“Many businesses were clearly not prepared for the original deadline this April. Given the resolve of the government to introduce the changes, it would be foolish to ‘wait and see’ for too much longer.”

Wednesday 1st Jul 2020
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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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