A parliamentary group formed of MPs and peers has said that accountancy firms must challenge the new and “deeply flawed” IR35 rules.
“The accountancy profession needs to be challenging HMRC on the mess that has been created,” says Ruth Cadbury, MP for Brentford and Isleworth, and co-chair of the Loan Charge All-Party Parliamentary Group (APPG).
“I think accountancy firms have a responsibility to be completely transparent with people.”
The APPG published a paper in response to the new ‘off-payroll’ rules being brought into effect in the private sector earlier this month.
In the report the group argues that IR35 has been responsible for a number of serious contracting issues, including the proliferation and use of unregulated umbrella companies and tax avoidance schemes.
“The government should be going after these dodgy umbrella companies,” says Cadbury. “This has all been allowed to go ahead because HMRC are just not on top of the monster they’ve created.”
Anita Monteith, tax faculty technical manager at the Institute of Chartered Accountants in England and Wales (ICAEW) questions the validity of these claims, suggesting that the solution needs to be “apolitical”.
“There’s no quick fix or snappy one-liner here. There’s more to it than that. The problem with governments is they come and go, and pretty much all varieties of government have had a go at this one,” she says.
“They [the APPG] are essentially members of the public who happen to have become MPs. So, if that is their perception of the situation, it’s reasonable to assume that they’re either reading the wrong press, or they haven’t understood all of the principles.”
Employment and tax law
Both the APPG and the ICA argue there is a ‘disjointedness’ that exists between employment and tax law at the heart of the UK’s contracting issues.
“We don’t seem to have an easy place for contractors in either employment or tax law,” says Cadbury.
“They’re either forced into a PAYE situation yet have to pay all of their costs and receive none of the benefits of being an employee, or they’re agency workers who may or may not be getting ripped off by umbrella companies.”
There are three employment statuses in employment law – employed, self-employed, or ‘worker’ – and just two in tax law – employed or self-employed.
“This makes it even more complicated,” says Monteith, referring to the ‘worker’ status as a “halfway house between employed and self-employed”.
“We are calling for a fundamental review of the status of work.”
Taxi and food delivery service Uber is a prime example of how this confusion has manifested in recent times. In March, the Supreme Court ruled on a landmark employment case, officially classifying all UK-based Uber drivers as ‘workers’.
More than 70,000 drivers will now be entitled to the national minimum wage and benefits such as statutory holiday pay. However, they will still be bereft of full employee rights, including a minimum notice period and redundancy pay.
“The changes to off-payroll working apply to the contractor’s status for tax purposes only do not affect status for employment rights and benefits,” said Annelise Tracy Phillips, senior associate at UK law firm Burges Salmon, in an email.
“Given the administrative burden now placed on end users as well as increased National Insurance costs, many are seeking to secure their supply chains by excluding the use of off-payroll workers entirely, particularly given the increased tax and status risk.”