The IR35 legislation was introduced by the Government to counter what HMRC class as disguised employment, but is now inadvertently affecting thousands of consultants, engineers, designers and white collar contractors from providing their services as self-employed workers.
What does HMRC’s latest tax yield reveal about this legislation and its effectiveness?
2013-14 figures show that the yield is more than double what it was in 2010-11 and less than half than 2011-12, so does this show that the new framework for administering IR35 is failing?
The latest figures were released by HMRC in response to a written request from Labour MP Pamela Nash, and commentators have concluded that the latest figures show that the new IR35 framework is failing.
IR35 legislation too simplistic and subjective
I’m not sure that the effectiveness of the IR35 legislation can, or indeed should, be measured by the size of the yield. In my opinion, this conclusion is too simplistic and subjective.
People can and will use these figures to try to sway opinion and re-inforce their position on both sides of the argument, for or against IR35. To be meaningfully compared the figures need to be used and compared, together with lots of other data.
The IR35 legislation is very costly for HMRC to investigate as well as difficult and expensive for enterprising individuals, such as contractors, and their service companies to comply with.
My experience of contracting as a Piping Designer
I can still remember when I decided to go contracting. I was a 23 year old Piping Designer, working for an American company in the North West of England. A number of my colleagues had recently left to go contracting. They were working hard and didn’t get any of the benefits that I had as an employee. They’d given up the security, benefits and career opportunities that go with being an employee but were free to choose when, where and who they worked for. It all sounded very exciting and I was instantly attracted to the concept and freedom of contracting. It was an easy decision for me to make, especially the opportunity to work overseas. I left my full time job and secured my first contract, working in Holland. I didn’t even have a passport and had to start the contract within a week, so I shot off to the passport office in Liverpool and left my employee days behind!
The self-employed are being inadvertently affected
The vast majority of people that provide their services via Personal Service Companies (or PSC’s), and are therefore caught by IR35, do so because of legislation that dates back to the 1990’s. This legislation was introduced to reverse the trend for Construction Industry Scheme (or CIS) workers who were at that time being classed as self-employed. The legislation has also affected thousands of consultants, engineers, designers and contractors from providing their services as self-employed workers. These people, chose to give up their employment rights, long term careers and all that goes with being employed so they’re not simply just getting an unfair tax advantage.
Let's work together to deal with ineffective legislation
Shouldn’t we be working together - HMRC, businesses and the self employed - to agree upon a solution and acknowledge that we’re all dealing with the unintended consequences of past legislation? It would benefit everyone if we could agree and accept that a flexible work force is at least desirable and, at best, to be encouraged.
I say, let’s stop legislating against the entrepreneurial work force. It’s costing us millions and what is it actually achieving?
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John Urpi is CEO of First Recruitment Group