If IR35 was a tax mechanism used in centuries past, I dare say the CEST “tool” we are presented with today, would have been a befuddling series of questions presented by the tax collector to unsuspecting freelancers.
Freelancers, much like they are today, would have been left confused, uninspired and ultimately dependent on the taxman to determine their career’s fate and growth trajectory. A loss of free thinking that would have changed all our lives, and not for the better.
Think about how the course of modern music history would have been shaped or barely shaped at all had independent songwriters, such as John Lennon, Paul McCartney, Burt Bacharach, Gerry Goffin and Carole King had to work an “inside IR35” equivalent rather than have the freedom to write for music acts before they started penning songs for themselves. Or what if the comedic genius and diverse career aspirations of Billy O’Connolly had been dictated by recruiters, comedy club contracts and umbrella companies?
Other freelancers that have made history without confusing and stifling work status regulations include freelancer coder, Bill Gates, Walmart’s paperboy turned retail titan Sam Walton and freelance journalist turned horror fiction author, Stephen King.
Why IR35 is doing more damage than good to the UK economy
While other nations are seeing their freelancer economies flourish, such as the US, the UK is in a state of flux because IR35 and Off-Payroll regulations have taken away for so many what it means to be a freelancer by dictating how and who they can work with.
The Public Accounts Committee’s latest report on its examination of the implementation of the IR35 Reforms, “Lessons from implementing IR35 reforms” has contained what IR35 compliance experts say contains “damning criticism” of the implementation, drawing attention to “widespread non-compliance” with IR35 tax reforms in central government departments.
Dave Chaplin, CEO of IR35 Shield, who provided some evidence for the review, said: “Neither the Government nor HMRC are in the habit of admitting when they have made a mistake but this damning report by the Public Accounts Committee should make them all sit up and listen.
“HMRC and the policymakers ploughed full steam ahead into rolling out the off-payroll reforms to the public sector in 2017 and over the last year or so we have seen a car crash, a massive pile-up some might say, as even government departments have got it wrong,” says Chaplin.
“Firms are struggling to get status determinations right, and CEST is proving to be dangerous for firms – a hindrance, not a help. The disproportionate tax risk and double taxation issue has still not been resolved, and neither is there any independent appeals process for contractors who are not being treated fairly.
“Over the last 20+ years there has been considerable misjudged and damaging legislation heaped on the contracting sector and the sensible option would be to go back to the drawing board and design a fair tax system that works fairly for everybody,” he says.
Andy Chamberlain, Director of Policy at IPSE is equally concerned over the “damning indictment of the IR35 rules.”
Even the government is losing faith
Chamberlian feels the report shows that the flawed reforms have had devastating consequences for hirers and self-employed workers alike, with thousands of self-employed workers losing public sector contracts since the changes to off-payroll work in 2017, while government departments have been left shouldering huge tax bills.
“The report has also shown that too many hirers are making incorrect IR35 determinations,” says Chamberlain. “Employment status rules are notoriously complex for organisations to understand, and it is still far too difficult for workers to challenge incorrect determinations as there is no independent appeals process.”
IPSE hopes that the report “jolts the government into action” and rules are urgently reconsidered.
“The rules are far too confusing,” says Chamberlain, “are causing major conflicts within the labour market, which is preventing projects from being done and, in turn, damaging the UK economy.”
A world without freelancers is a world without free thinkers. Given the state of world affairs, as they are, that’s a sacrifice no government should be willing to make.