IR35 advisers express concern for non-contractors victimized by ‘non-payroll fiasco’ revealed by MPs

The litany of problems with IR35 – as unearthed by the Public Accounts Committee – has experts worried about how businesses, taxpayers and the economy are being affected.

Even taxpayers and the courts are also seen as losers from the revised and existing intermediaries legislation, as the PAC found that it contains “structural problems”.

“Fiasco IR35”

Kate Cottrell of Bauer & Cottrell explained: “I wonder what the public thinks of the IR35 fiasco that the PAC found, with millions of pounds due, already, from state-funded bodies.”

The IR35 specialist further told ContractorUK: “Furthermore, HMRC’s research, advice and tools, in addition to their interpretation of case law, are inadequate and simply wrong.

“Remember MPs have also found that HMRC cannot give solid assessments of tax and network card due, and have no idea of ​​the true cost of implementing the IR35 – for HMRC and all others.”

This “everyone” can be divided into two easily identifiable groups – the public and private sectors.

“Really unfair”

But both sectors are still reeling from the 2017 and 2021 no-pay rules, says accountancy firm NumberMill.

Company boss Lousie Rayner told ContractorUK: “The public sector quickly realized they were going to struggle to attract and retain contractors. [by determining many as inside IR35].

“So he changed course quickly – but now he appears to be caught off guard as their assessments of contractors’ IR35 status are found to be incorrect by HMRC.

“In the private sector, it is more common for entrepreneurs not to benefit from a rate hike [to offset inside IR35 tax implications] and therefore they are significantly worse off, which is really unfair.

“This, combined with increases in National Insurance contributions in April, and the huge cost of living…is causing employers to jitter. The result? A stifled market.

“Double risk for organizations”

But apart from sectors, the benefits for organizations are the same.

Matt Fryer, Brookson’s new chief executive, said of the PAC’s 21-page report:

“These results remind us that organizations that are unable to navigate this complex system risk both non-compliance and the loss of talent to competitors, who may offer more attractive and compliant contracts.”

Pointing out that there is indeed a whole other piece of research to be done, specific to end users who have simply banned personal service businesses, is Nicole Slowey of Qdos.


IR35 review company operations manager Ms Slowey said: “One aspect [mentioned by the PAC but comparatively] overlooked is the number of companies that have stopped hiring contractors due to the IR35 reform.

[These businesses] insist that they work through umbrella companies or as permanent employees. While this is a technically reform-compliant approach, as it is not general IR35 determinations, since IR35 reform can be managed, it is an unnecessarily tax-averse strategy. risk.

“[And] it is the one that deserves attention. Forcing real contractors to work on the payroll significantly undermines labor market flexibility.

“IR35 ruins gig economy and entrepreneurship”

NumberMill’s Ms Rayner agrees, saying that while the economy and its types of businesses are suffering, the corresponding rules that organizations must follow cannot even be crafted by the best judges in the UK.

“As the courts struggle to deal with the inconsistency of cases and [effectively] admit that two results, inside and outside of IR35, could be derived in many cases, IR35 ruins people’s labor economy and enterprising spirit”.

In a statement, the accountant continued to ContractorUK: “In my mind this is all about to implode as no pay rules are shortsighted and the implementation of HMRC has been to the detriment of our economy.

“Even with the additional taxes collected, they may well be more than offset by the economic disadvantages [of IR35]which HMRC did not factor into the round.

“Not suitable for use”

Equally exasperated is Ms Cottrell, who used to inspect the tax office: “Add to the list of problems, that the same income is effectively taxed twice by HMRC, and in the public sector alone – which the PAC considered, that workers become able to recover all the taxes they have paid, well; the public sector may end up paying all the taxes on workers it wrongly considers self-employed.

The former tax inspector further told ContractorUK: ‘So the phrase ‘not fit for purpose’ comes to mind with these new IR35 rules and the way HMRC have implemented them. Now is the time for someone to listen and take control.

Like status specialist Cottrell, tax lawyer Rebecca Seeley Harris has already been enlisted by HM Treasury to help improve its rules on IR35 and employment status.

‘What must happen?’

But the lawyer’s current assessment will disappoint his seconded ex-HMT colleague, if “someone who listens and takes control” is the goal.

“I know I’m not the only one who spends time helping the government understand the labor market, especially in relation to umbrellas and IR35, but it would help if there was some progress,” said Ms. Seeley Harris, Founder of ReLegal Consulting.

Disheartened, she added: “I wonder – what needs to happen for the government to make even small incremental changes to make this legislation at least workable on a day-to-day basis?

“There are several problems [being ignored] here; IR35, self-employment, umbrella corporations, the expanding gig economy. But [no action to resolve them]. Something has to change.

“Several years of division”

Ominously, Graham Webber of WTT Consulting seems resigned to IR35 being a problem of the ages.

“The issue of IR35 indoors/outdoors is one that has tested many tribunals and courts; generated thousands of pages of commentary and court rulings — [and it] will continue to do so for many years to come.

Worse still, perhaps, the much-criticized framework could soon cover or attract even more parties, just as Mr. Webber himself predicted.

Nigel Nordone, tax manager at Qdos, said: “There will be more IR35 investigations, based on the increase in compliance letters sent to recruiters…[but more crucially]the small business exemption will be removed – in due course.


An HMRC spokesperson said the Revenue Service welcomed the PAC’s “recognition” that the IR35 reforms “appear to generate more tax revenue”.

In addition, since the very critical committee report, the tax authorities have started trying to assess the impacts of the IR35 reform on entrepreneurs and the labor market, in the form of external research projects around the 2017 and 2021 frameworks, includes ContractorUK.

The tax authorities have also started fieldwork to assess the short-term impacts of the April 2021 reforms, including looking at changes in the way contractors are engaged, with results to be released later this year.

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