A leading tax advisory service for contractors has restated growing demands for contracting professionals who are deemed to be inside IR35 to receive full employment rights.

Noting the HMRC’s near-disregard for the significance of absent employment rights in determining IR35 status, Qdos Contractor spokesperson Kate Cox reviews recent First Tier Tribunal cases which took a different view.

In the high-profile case of BBC TV presenter Christa Ackroyd, who has effectively strong-armed by the BBC to work off-payroll via her own personal service company Christina Ackroyd Media, or CAM Ltd, the presiding Judge, Jonathan Cannon, drew attention to the fact that she had no entitlement to sick pay, holiday pay, maternity leave, pension rights or other benefits. The reason was the BBC’s decision to make a contract with CAM Ltd, not with Ackroyd as an individual employee.

In addition, employment rights were explored at tribunal in terms of the contractor’s integration with the end client’s organisation during the case of IT contractor Ian Wells and his PSC, Jensal Software Ltd. In his work for the DWP, the tribunal noted that he had no managerial responsibilities for the Department’s employees and given the short contractual periods he was engaged for, he could only be considered an accessory who was simply brought in on an as-and-when-needed basis. Furthermore, he enjoyed no site-specific facilities and was entitled to no DWP benefits.

HMRC appears to operate according to a double standard: the presence of employment rights, if detected by its online CEST tool, will rightly automatically result in an inside-IR35 determination. Yet, the principle is not applied in the other direction: the absence of employment rights is simply ignored by HMRC.

The result is that contracting professionals deemed to be inside IR35 will have employee-level tax and National Insurance Contributions deducted at source on a PAYE basis, yet will still have to cover all the costs of running their business while receiving zero entitlements to employment rights and benefits, even though they are considered an “employee” for tax purposes.

Employment rights featured prominently in Matthew Taylor’s recent review into modern working practices in the UK, but it remains unclear how the government will manage his recommendations or the feedback from industry experts during its completed consultation on Employment Rights. Yet, this needs to be addressed as a matter of urgency with similar IR35 rules likely to reach the private sector in the near future.

Cox concludes: “HMRC cannot have their cake and eat it – if they want contractors to operate inside of IR35 and pay the relevant taxes, such workers should be given the employment rights they are entitled to as an ‘employee.’”

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