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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A Meeting of Experts Over Labour Market Changes
On Tuesday 17th May a group of experts on labour markets came together with Margaret Beels.
She is the Director for Labour Market Enforcement (DLME) and this was quite an interesting meeting. Its purpose was a round-table discussion of issues around the UK labour market of today and the future. One of the key aspects of this was considering contractors who have an increasingly big role in labour markets.
They operate under change and challenge, and this is an important consideration for the future. This was an important part of the discussion, but just one part in a landscape that is under pressure from massive vacancies and a shift to hybrid working. It is a brave new world of work that came under discussion.
In the wake of the announcement of The Future of Work review there might even need to be some bigger considerations. This makes sense alongside the thought that there could be big changes coming to the way that the UK labour market works. With more of a focus on working from home, it begs the question, does it matter where people work from?
With lower tax rates in countries like the Bahamas could there be an exodus of talent? They work from the Bahamas but for the UK, then realise that it is possible to take a job anywhere in the world from there. Of course, this isn’t going to be the majority of people, but some would tip a balance.
There is also the thought that some UK companies may offshore jobs abroad, not this time because it is cheaper, but because they cannot fill the posts. It is no surprise that during this meeting, Margaret Beels called for joined up thinking. No wonder, given the number of different aspects feeding into this.
Labour market expert Keith Rosser reports that there was a consensus that industry must do more. They are not the only ones. There was consideration given to a new kind of template with a co-regulatory framework for work in the UK.
Perhaps there could be self-regulatory schemes that are more robust than what we have now. These could be a joint partnership of both government and industry combined. To top this off there would be binding legislative duties.
Perhaps this sort of strong but flexible approach could work well. While change is already happening, it seems a good time to be able to take on different elements of change. Brexit, Covid and massive increases of technology use have all made waves.
Perhaps these waves could be brought together to maximise the good parts of them all to influence what comes next. The labour market of today is quite different to the labour market of even just a couple of years ago. The labour market of tomorrow probably looks quite different again but hopefully it will harness all the best parts of what there is now.
The opportunity to maximise this might be a brief window but at least there are those who are trying to make the most of it right now.
