IR35 changes kicked in this month, following a year of delays due to the impact of COVID-19. The legislation, formally known as off-payroll working rules, is used by HMRC to evaluate whether a contractor is genuine, or simply being used as a “disguised employee” for the purposes of paying tax. This month, the legislation was changed in a process the Government said would ensure everyone pays their fair share of tax.
However, a report published by a group of MPs has raised potential issues surrounding IR35.
The All Party Parliamentary Loan Charge Group stated that while it accepted the need to stop tax avoidance, the current legislation was not satisfactory.
The group believes off-payroll reforms now being rolled out into the public sector, should be reexamined during the passage of the Finance Bill this year.
The report went on to state: “The Treasury and HMRC should stamp out the abusive practices outlined in this report.
All ‘inside IR35’ workers should get full rights under all legislation dealing with agency workers, with a clear and transparent right to holiday and sick pay.”
Since April 6 - the start of the new tax year - it had been the responsibility of public sector clients and medium to large sized businesses to decide on their worker’s employment status.
This is an issue which has caused a certain degree of backlash as employers expressed fears they were not amply prepared or equipped for their new decision-making responsibilities.
He told the inquiry: “In addition, I have become concerned with the endless and continuous changes to the UK tax framework which are supposedly designed to address such avoidance issues, as well as items such as the fundamentally flawed ‘off-payroll’ regulations which are supposedly to introduce fairness into the tax framework.
“Such items are overly complex, detract from the core activities of business, and in my opinion are damaging to the health and wellbeing of both individuals and the economy in general.”
Mr Stokes also expressed dissatisfaction, stating he felt many contractors and freelancers had been left “largely unsupported” during COVID-19.
He said this issue either arose from “lack of concern” or “lack of understanding” and a failure to recognise the role such workers play throughout the UK.
The APPG has said the Government has a responsibility to look at how people should structure their work to ensure they are properly recognised and protected in future.
Yet another key recommendation to come out of the report relates to workers rights as they fall under tax and employment law respectively.
The issue of workers’ rights is also one which has been raised, particularly following the well-known Uber Supreme Court ruling in February 2021.
It has led to questions about what rights employees will have secured and how the law will apply to them.
The APPG has therefore recommended an alignment of tax and employment law to ensure fairness.
It added: “We call on the Government to accept it is unfair for workers who are taxed as employees to be denied the rights and benefits of an employee or recognition in employment law.
“Anyone who is taxed as an employee should also receive the corresponding benefits; thus, by aligning tax and employment law, certainty for both contractors and hirers will ensue.”
The Government has provided a brief guide to help individuals understand the changes to IR35 and the steps they may need to take.
Companies are being encouraged to look at their existing workforce and engage with individuals and agencies on the matter.
They must additionally consider who needs to operate PAYE to ensure the correct taxation - such as Income Tax and national Insurance - are deducted for engagements inside the rules.
Finally, those to whom the rules apply will need to keep records and test their processes to ensure they are amply set up.