Yes, the government owes itself money over IR35 to the tune of £263m.
Since the change in the IR35 rules, many more businesses and organisations have had issues.
These vary wildly – there are organisations taking a blanket approach that everyone doing any work is now an employee. There are businesses employing contractors but only if they are on their preferred supplier list of umbrella companies. This is just the tip of the iceberg of what has companies running scared thanks to IR35.
There is an onus on them to fall in line with rules and make judgements on status. The rules are both draconian yet also fall into grey areas where it is not clear what to do. No wonder there is confusion. Yet it might be a surprise to hear who is struggling with IR35 this week.
The biggest question though is how did this happen?
Well, the Public Accounts Committee note there is “widespread non-compliance” and they mean everywhere, even with public bodies.
They say that the implementation of IR35 reforms was rushed. They additionally mention that guidance has been poor. Their final nail in the coffin is for the CEST tool which it notes that organisations have struggled to use.
None of these comments form a positive position in relation to IR35 and the committee did not end there.
The chair of the committee, Meg Hillier, declared that workers in the gig economy have been able to challenge their work and tax status, and have their day in court. She noted that those found to be under IR35 are experiencing a range of issues thanks to IR35 reform but there is no recourse for them as yet. Confusion is rampant, as can be seen by the government itself owing money.
She believes that it is now up to HMRC to prove that the reforms can work fairly in the real world. This has yet to be proved and is an important consideration when thinking about all the things that have gone wrong so far.
The changes to IR35 came about for a bona fide reason. The government wanted to tackle actual tax avoidance. The plan for this was specifically to crack down on ‘disguised employees’ who were put through as contractors but to all extents and purposes were staff.
In some cases, these were previous staff of a business, and the only change was to their status and not their work type or way they work. This is not fair and has a specific intention to cheat the system. So, the idea that underpins it does make sense.
Yet, it is the way that HMRC have gone about it is that regularly gets called into question. For example, they estimate at least five times more people work through umbrella companies now than 2007-2008. Perhaps this is not right either. It is time to shake up the system again but for the better.
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HMRC’s soft landing period has ended and IR35 enquiries will soon begin in the private sector. Make sure you identify any risk areas and ensure you’re managing it correctly.