Politically incorrect

Shadow business minister Mark Prisk has been in the spotlight recently for his comments around IR35, painting it as a piece of Labour legislation that the Tories would happily dismantle.

Seeing “over-complex, uncertain and often unfair” IR35 as an illustration of Labour’s “meddling with the tax rules”, Prisk claimed it would be part of a fundamental review by the independent Office of Tax Simplification.

Wielding IR35 as a piece of Labour law to be spat out as part of the Tories’ new broom sweeps clean stance is blatant electioneering.

To start with, trying to scrap IR35 would involve serious pressure from the unions, and indeed from the whole micro-industry that’s built up around the introduction of IR35.

It’s also expensive to change legislation, and as contractors represent only a very small percentage of the workforce, politicians would be better off looking at areas where there would be a greater impact on the tax-paying public.

There’s no denying that IR35 is complex. Reviewing and simplifying it would be fantastic. Anything that makes it easier for the accounting community and contractors alike to better understand and interpret the legislation is welcome- but Prisk’s comments around doing away with IR35 raise some serious questions.

The legislation was introduced in the first place to stop unscrupulous employers getting rid of staff and then bringing them back as freelancers.

When people are employed, they should enjoy employee protection – in a way, people’s rights were being eroded when they were asked to return to work in a freelance guise.

IR35 was a dramatic solution, but accountants and HM Revenue & Customs have grown used to dealing with it. While both sides don’t always see eye-to-eye, nine times out of ten, the profession and HMRC agree on what IR35 means.

Any change to the legislation now would bring the ambiguities back. Various ‘tricks’ would evolve, with each abuse taking four or five years to get through the courts. This wouldn’t be in anyone’s interest.

The simplification of tax rules should be welcomed, and the same goes for more rigorous enforcement of the legislation. There’s a real perception out there that the taxman lacks both the stomach and the resources to properly enforce IR35. In the last couple of years especially, there seems to have been a lack of resources to police IR35. As long as that’s the case, those unscrupulous contractors who milk the system will continue to do so, giving a bad name to the law-abiding majority of the contractor workforce.

So – simplification, yes, by all means – but for IR35 to be bandied about by politicians as yet another electioneering tool is just not on.

Derek Kelly is managing director at specialist contractor market accountants ClearSky Accounting