HMRC’s IR35 Reform Sparks Further Criticism Aug 10, 2018Views: 206
HM Revenue and Custom’s (HMRC) IR35 reform has attracted a lot of criticism after it was introduced last year. A lot of questions is being raised regarding the validity of the reform. However, the UK tax authority has not been able to provide satisfactory answers to the questions.
The criticisms regarding the IR35 reform has not been taken seriously by the government. Even Member of Parliaments (MPs) have questioned the validity of IR35 reform.
Grant Shapps, the Conservative MP of Welwyn, had asked Stephen Barclay, the Secretary of State for Health and Social Care about blanket IR35 assessment by the NHS Trusts. The blanket assessment has resulted in many independent contractors being considered inside the IRS. This has caused financial difficulties for the contractors due to the increased tax burden. It has forced the contractors to look for work elsewhere contributing to the existing staffing crises for the NHS trusts.
Fallacious Responses of the Minister Regarding IR35
The Minister of State for the Department of Health and Social Care had responded to the criticism against IR35 by stating that there has been no sector-wide evaluation of the effects of IR35 reforms and the upcoming loan charge on NHS Trusts. But he cited a recent study by HM Revenue and Customs (HMRC) that around 58 percent of public bodies have not experienced any problems in filling vacancies and 63 percent did not experience an increase in rates payable to contractor due to the IR35 legislation.
This blinkered view of the effects of IR35 reform is fallacious. While around 58 percent have not faced any problems, there is the remaining 42 percent whose problems regarding staffing shortages cannot be ignored. Also, the above figures may not necessarily apply to NHS Trusts.
The Minister had also stated that no assessment has been made of the NHS Trusts that have carried out a blanket assessment of independent contractors. The changes in the Income Taxes (Earnings and Pensions Act) 2003 that was outlined in the 2017 Finance bill states that employment status should be made on an individual basis.
However, implementing the law is not straightforward. Assessment of contractors individually will result in increased administrative burden and the associated costs. In addition, it is not possible to ensure that off-payroll workers with similar role have equal working practices. Role-based blanket ruling favours ‘inside IR35’ results. Furthermore, the HMRC is unlikely to accept the same application method suggested by the Minister for ‘outside IR35 results’.
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