Qdos Contractor, the specialist tax advisers for contracting professionals, has urged HMRC to acknowledge the scale of the chaos caused by reformed IR35 rules in the public sector before pressing for the legislation to be imposed on the private sector.
Writing in economia, the journal of the Institute of Chartered Accountants in England and Wales (ICAEW), Qdos Contractor CEO, Seb Maley, warned that the Revenue’s preferred aim is to extend the reforms to the private sector, which is bigger and more complex than the public sector, even though there is evidence that they have had a disastrous impact.
Public sector end clients were made responsible under the rebooted rules for determining a contracting professional’s tax status. Lacking any expertise in case law, upon which accurate IR35 determinations must rest, many public sector engagers were forced to rely instead on the HMRC’s flawed CEST tool, which, despite not being mandatory, has almost certainly resulted in a huge number of false determinations. HMRC recently admitted it cannot prove that its own recommended test is accurate.
Recent research from Umbrella Company trade association, the Freelancer and Contractor Services Association (FCSA), found that only 24% of contractors had had their tax status determined compliantly.
Thousands have been wrongly designated as inside IR35 and forced to pay much higher income tax and NICs, despite receiving none of the statutory employment benefits these taxes are meant to pay for. Large numbers of contractors have been subject to blanket ‘inside IR35’ designations in panic-driven attempts to avoid liability for extra tax, which the rules impose on end clients, and, if involved, recruitment agencies. This is contrary to the government’s guidance, which states that assessments must be on a case-by-case basis.
Research from the Independent Health Professionals’ Association has recently shown that 98% of contracting healthcare professionals are contemplating working elsewhere after the NHS imposed such blanket determinations.
As the consultation on extending the rules to the private sector closes on 10 August, Maley notes that industry opponents still have several months to resist the changes. Contractors do not want the reform, he observes, and neither do private sector end clients or recruiters, both of whom do not want the added administrative burdens or the resulting liability if HMRC decides to investigate.
Maley writes: “the evidence is stacking up to show the government’s public sector project – which was widely regarded as a pilot for the private sector – has not worked so far. HMRC must get its house in order in the public sector before going ahead with further reform.”