In the concluding part of this article, Mark discusses how successful - or otherwise - the UK Government's drafting of IR35 legislation has been.
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In last year’s article, I focused on the forthcoming legislation changes within the private sector called Off-Payroll (IR35) Working Regulations, which were delayed from the original implementation date of the 6th April 2020, and pushed forward by a year to the 6th April 2021 — rightly, as a result of the then increasing threat of COVID-19 and the unprecedented international lockdown.
More recently, in Part 1 of this series, we looked at how the first lockdown played into the hands of this legislation. I summarised that we believe that over time the market will settle down with genuinely ‘outside’ IR35 assignments becoming more prevalent as the commercial world re-balances back to normal market forces and demands.
Now we look at the second part.
It is widely acknowledged in many professional circles that the total ‘tax take’ of a contractor operating via a PSC is not dissimilar to that of an employee on the same level of remuneration. Albeit in differing silos to that of the traditional PAYE employee ‘tax take’, i.e. VAT, corporation tax, dividend tax, etc.
It could be argued that as contractors, in the main, have an increased remuneration over the equivalent permanent employee, they are actually contributing to a higher tax take across the various mediums!
The issue (to the layman) seems to lie more with National Insurance Contributions(NIC), with the largest increase for the taxman due to operating a contractor via a PAYE scheme, being the collection of employers’ NIC at 13.8%.
In discussion with hiring organisations about IR35, when we explain that the contractor is in essence self-funding the employer taxes and other employment benefits (such as holiday pay) associated with being determined as a ‘deemed employee’, this is met with sudden recognition of the core issue faced!
I believe that the Government missed a trick and went for the easy target when drawing up this legislation. If the legislation addressed the core issue of increasing its NIC take fairly and consistently in line with employment rights, they could have had more success implementing the legislation.
I believe that the Government missed a trick and went for the easy target when drawing up this legislation.
In short, if a hiring organisation deems a contractor as an employee, i.e. ‘inside’ IR35 and employs a fair and professional Status Determination process, the following should occur:
Coupled with actual policing of the Status Determination process by HMRC (to ensure that organisations are not blanket-banning PSC engagements), assignments that don’t sit outside IR35 have a fair and legislated route which conjoins with standard UK employment practice. This would put a stop to the increasing ‘no rights workforce’ that the current legislation is perpetuating.
Mark Thomas FIRP
This article was written by Mark Thomas FIRP, who is a Director of Oracle Contractors and leading their IR35 initiatives. If you would like to discuss this subject further, then Mark can be reached at IR35@oraclecontractors.com.
Our IR35 comparative calculator shows the financial implications of IR35 tax legislation in relation to working inside or outside IR35.IR35 Comparative Calculator