R35 ‘Falsehoods’ Revealed

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Posting date: 12 June 2018

Zero hour contracts and the gig economy have been grabbing headlines for months now. The government’s commitment to cracking down on exploitative contracts and fraudulent tax practices, has been hailed a success by HMRC.

While a number of positive steps have been taken, others have not been so well received. Most notably IR35. The regulation, introduced to the public sector in 2016, prescribes that where the contractor-client relationship is similar to that of a traditional employee, the relationship is deemed ’employed for tax purposes’. As such, ‘employers’ and contractors may face fines and be subject to back-payments by HMRC.

Despite the major backlash from industry experts and public sector contractors, HMRC in May confirmed that the private sector will soon be subject to similar reforms, following a period of consultation.

The Harsh Reality

Few have been as vocal in their dissatisfaction with the manner in which IR35 has been handled as ContractorCalculator CEO, Dave Chaplin. Most recently he published a factsheet, drawing on multiple industry surveys (including our own) and extensive journalistic research from the Times and ContractorCalculator.

The purpose behind the factsheet, as Mr Chaplin puts it, is to “debunk the falsehoods that HMRC is purporting, and counter-balance the taxman’s blinkered and biased view,”

“So far, HMRC has published their preferred version of the story, but we can’t allow the general public, and more importantly the country’s key decision makers, to be misled.”

Chaplin goes on to say, “HMRC has banded around these figures emphasising the supposed cost of non-compliance with IR35. Elsewhere, it claims that the reforms have improved compliance. None of this has been substantiated”.

“Mystery statistics and misleading claims have been a recurring theme in HMRC’s promotion of the off-payroll rules. By contrast, everything within our factsheet is verifiable; much of it coming from a collection of studies into IR35 in the public sector, which HMRC ironically dismissed in its consultation as ‘anecdotal’ or ‘rumours’.”

Industry concerns

Meanwhile, the Recruitment & Employment Confederation (REC) has identified key issues with a summary of HMRC-commissioned research into the impact of IR35 reforms on the public sector that accompanies the consultation.

REC Stakeholder and Engagement Manager, Karen O’Reilly, writes:

“Although the report is narrow in scope and focuses on just three areas of the public sector – education, healthcare and defence – it does highlight some of our main concerns with the government’s proposals.”

The REC claims the report gives the impression that early teething problems with the reforms have now been ironed out. But this contrasts sharply with feedback they receive from their own member recruiters, who continue to express deep concerns about the Check Employment Status for Tax (CEST) tool and maintain that a simple replication of IR35 rules in the private sector would be a serious error.

They go on to say “A third of CSBs reported difficulty in sourcing suitable contracting professionals after the reforms were introduced. This was also widely reported by other public sector bodies, who also complained that procedures for filling contract vacancies had become considerably more time-consuming, following the reforms.”

Looking forward, it appears the new look I35 is here to stay. Despite calls for more reflection on its impact on the public sector, HMRC seems set to push ahead with its introduction to the private sector. We would strongly recommend that private sector businesses begin planning with a worst case scenario in mind.

To find out more about the Harvey Nash Recruitment Solutions’ 2018 IR35 Report and how we can help your organisation prepare for the regulation get in touch.