It was recently leaked that ministers were planning to make changes to the IR35 legislation in the Autumn statement, making employers or intermediaries responsible and therefore liable for the contractors they engage with. Their reasons for the changes are that 100,000 people are potentially avoiding tax and costing the exchequer £400m in lost revenues.
I’m left wondering how the treasury decided on this figure.
Are HMRC still looking for an “IR35 elephant” that doesn’t exist?
If someone said that there’s an elephant in the room, then the failure to observe an elephant would be good enough reason to think that there is no elephant. If someone were to assert that there are a few fleas in the room, then failure to observe them would not constitute good evidence that there were no fleas in the room.
In my opinion the treasury is wrong and they’ve based their figures on incorrect assumptions that suit their perceptions.
The results of their efforts over several years also seem to suggest that they have indeed got it wrong. If there was such a high level of avoidance their efforts to find it should have been much more successful.
The Guardian newspaper recently quoted a ‘government source’ saying:
“The tax system has to be fair for everyone and it’s not fair that some people are employed and pay their taxes when the person sitting next to them does the same job for their own company and pays less tax.”
On the face of it this seems to be a reasonable statement but there’s much more to it than that.
The person who’s employed has a job with all the security, protected employment rights, training, development and benefits that go with being an employee. The person sitting next to them is on an assignment that may last for just a few months, with no right to extend it, no notice period, no rights to bonuses, pension, training and development or employment rights.
That’s not to say that a minority might take advantage of this system, for example when it was revealed that BBC presenters were being paid through personal service companies but should the majority of genuine self-employed and contract workers suffer because of a small minority?
Meeting with HMRC
I recently attended a meeting and there were two HMRC people present, about the proposed changes that they’re planning to introduce in April, which will prevent contractors, many of whom are working on short term assignments, hundreds of miles from their home, from claiming the same tax relief as employees for their travel and subsistence.
An attendee said that it would be unfair to allow an employee to claim tax relief when the person they’re working next to, doing the same job and on a one off short term assignment pays more tax.
The HMRC spokesperson said he wasn’t there to make the tax system fair!
Is it possible that HMRC’s assumptions, calculations, comparisons and conclusions are wrong and unfair?
**ENDS**
John is CEO for First Recruitment Group