IR35 compliant? – Computer says …
I seem to be writing a lot (some may say too much) about driver status recently. And thanks to the increasing number of high profile tribunals, which have been well documented, as well as the other gig economy cases, it is very much the trend this season. You may have also read in the paper about the off-payroll working in the public sector consultation, that has come through quicker than anyone expected (coming into force this April) and will radically change the way IR35 works for public sector engagement. So how did all this start?
IR35 is a term loaded with dread for many self-employed workers and personal service companies. Implemented in 2000, the goal has been to eliminate tax avoidance amongst contractors that supply their services to clients via their own established companies. The legislation has come under much criticism since its inception, chiefly because those who HMRC deem to be ‘disguised employees’ are subject to the same level of taxation as employed individuals, without any of the perks that traditionally accompany an employment contract. However, come April 6th 2017, HMRC will roll out significant changes to IR35 that could affect thousands of contractors across the country. Here’s what you should know:
From April 6th, public sector clients will be required to check whether their contractors pass IR35 using a new online tool, yet to go live on HMRC’s website. It’s a pretty uncomfortable time for contractors to say the least; they are expected to continue as normal when their employment status is placed under the microscope. Given that 21 cases relating to IR35 have made it to court thus far, it seems very bold of HMRC to believe an online questionnaire would reduce, or even eliminate the need for expert consultation on both sides. There could be a myriad of issues that affect a contractor’s employment situation, so to learn that the future of their employment, tax and National Insurance liabilities will come down to a digital ‘yes’ or ‘no’ is daunting.
Since the announcement in George Osborne’s 2016 Budget, self-employed contractors often find that recruitment agencies and clients won’t hire them, and have no choice but to set up a personal service or ‘limited’ company. This route does have its benefits but is primarily done simply to gain work. HMRC’s website places emphasis on the worker to establish the ‘underlying relationship’ between themselves and their clients on each contract so it is a fine line between IR35 applying or not. It also applies to previous contracts with clients, heaping even more pressure on both parties alike. IR35 legislation has come under fire for its potential to stifle entrepreneurial service providers, working on their own initiative. HMRC, however, insist that the legislation’s upcoming imposition on public sector contractors isn’t a cash grab, but a move to collect an estimated £400m a year lost through non-compliance.
How does this affect our industry? Well if the public sector adopts it, the chances are it will create precedence that can be used against the engagement of drivers. At best, it will give HMRC the motivation to push the limits about how they look at enquiries and investigation. Although, enquiries are becoming more automated because of the HMRC ‘CONNECT’ software, which matches details on tax returns against financial information held, they do still follow trends.
Many enquiries start as books and record checks. Enquiries range from a simple check to a full-scale investigation. But, in the same way many status enquiries start as VAT inspections but don’t be surprised when questions are asked that don’t necessarily make sense in the context of why the Inspector is there, and then you find yourself defending the status of your subcontractor drivers.