IR35 expert, Qdos, has responded to the release of HMRC’s evidence put forward to the Finance Bill Sub Committee for their inquiry into IR35 reform in the private sector. Will the HMRC admit what the reform is really doing to British entrepreneurship and self-employment?
“HMRC’s submission doesn’t tell the full story of IR35 reform,” says IR35 insurance specialist Qdos CEO, Seb Maley.
According to Maley, the government “paints a picture that suits its own narrative and interests” rather than addressing the realities faced by contractors and businesses.
“The tax office says it’s too early to assess the impact of the changes and if reform has made it more difficult for firms to engage contractors. It’s not too early. While more firms are getting to grips with reform, the fact of the matter is that it’s created challenges and resulted in contractors being forced onto the payroll,” says Maley.
Little incentive for HMRC to pull the plug on umbrella companies
Maley notes that the government expects to raise £3.8bn by 2026 through IR35 reform. But are these assumptions based on contractors being fairly or unfairly placed inside IR35?
Maley says that for HMRC to assume that IR35 reform has impacted only 180,000 contractors seems way off the mark, particularly when the government has previously said 500,000 people work through umbrella companies – a way of working inextricably linked to contracting and IR35.
“HMRC still somehow claims that CEST is capable and aligned with case law. Again, it isn’t. The tool hasn’t been able to determine a contractor’s IR35 status well over 200,000 times in the past year or so. What’s more, and despite this evidence, making light of it, HMRC has no obligation to stand by an IR35 decision based on CEST,” says Maley.
Qdos research completed by over 1200 contractors shows:
- IR35 reform (62%) is seen as the biggest threat to contracting in 2022, above new tax changes in April (18%), Covid-19 and Brexit (both 6%).
- Most contractors also feel that IR35 will continue to impact them in 2022, with (51%) not of the view that the situation will improve.
- On average, contractors rate CEST (HMRC’s IR35 tool) as 2/10, with just 14% happy to work with a business that uses the tool.
Will blanket bans on contractors be lifted?
In a previous Freelance Informer report, blanket bans on PSC contractors exposes UK to risks – Freelance Informer, Dave Chaplin, CEO of ContractorCalculator and compliance solution IR35 Shield, had this to say, “Specialist professional freelancers who are genuinely self-employed are hired to provide their services on a project-by-project basis, so it shouldn’t be any more difficult for government agencies and departments to hire them in a crisis.”
The problem arises when hirers opt to blanket ban limited company contractors as we have seen happen since the Off-payroll legislation came into effect.
Blanket bans mean that hirers have fewer options when it comes to hiring the best talent as that talent has now sought work elsewhere, although we know that some Government departments have started to lift blanket bans as we saw earlier this year at Network Rail.
HMRC’s Revenue and Customs Digital Technology Services (RCDTS), for example, has denied that it has hiring policies that unfairly favour limited company or personal service company contractors within the department or its technology arm, according to a Computer Weekly report.
HMRC’s accounts between the 12 months to 31 March 2021, showed that it engaged 403 temporary workers, which was even higher than the previous year, of whom 15 were determined to be working inside IR35. The remaining 388 individuals were classified as “out of scope” of IR35.
HMRC confirmed to Computer Weekly that the vast majority of the individuals classified as being out of scope of the off-payroll rules were employed via umbrella companies during this period.
Umbrella companies in my experience have been very unhelpful and it amazes me why these are necessary. As a self employed person i have an accountant and pay my taxes so this seems another layer of tax for the purpose of getting a wage slip. Also when you finish your contract it takes ages to claim if you have overpaid your tax
Umbrella companies and Teaching agencies for example are lining their pockets by refusing to pay most teachers through Pay As You Earn (PAYE). Instead they deduct both employee and employer National Insurance contributions from teachers weekly or monthly gross pay. Can these be legal? I think it should be investigated because it has gone on for too long.
My view is that the big consultancy companies have lobbied hard for this because they don’t want the competition from independent contractors who can deliver services much more nimbly and at much more competitive rates. The civil services is now paying double for talent as inside IR35 contracts are of no value and the real talent won’t take them, which means agencies coming in winning contracts and taking on contractors outside of IR35 to deliver these services. This is pretty dumb, especially from a Tory government who might imagine themselves pro business and pro entreprenuership.
All local authorities in London have broker agencies forcing everybody working as contractor is Social care (social workers) into IR 35 and particular umbrella companies … this should be illegal… all those SW CONTINUE as always to be contractor but forced to PAYE … all forced into further poverty while umbrellas and brokers are makes huge profits and the government gets away with exploiting contractors; robing them of their earring… it is illegal and needs to stop