The government is facing renewed calls to scrap the IR35 legislation it has relied on for 20-plus years to curtail, as concerns about the after-effects of its introduction continue to grow. Over two decades have passed since the government pushed through the original version of the IR35 legislation in April 2000 to clamp down on disguised employment by limited company contractors seeking to minimize their and national insurance contribution (NIC) liabilities.
The legislation aimed to curb the number of limitedcompany contractors who essentially work as permanent employees but use their off-payroll working status to avoid making pay-as-you-earn (PAYE) and NI contributions. Under the original legislation, contractors they did and how it was performed meant they should be taxed in the same way as a salaried employee (inside IR35) or as an off-payroll worker (outside IR35).
An inside-IR35 designation, therefore, means the contractor should be considered an employee of the company fortax and NICs as a permanent employee performing the same duties would do. The IR35 working rules have been subject to repeated criticism since their introduction. A that the legislation had never worked satisfactorily since it was introduced more than 20 years ago.
The inquiry described the IR35 legislation as flawed and said its fundamental revamp was long overdue. That is a many view share, including Dave Chaplin, CEO of contracting authority ContractorCalculator. It has always been sold to Parliament, and the Treasury as a tax-avoidance measure and a threat to the Treasury. However, this has always discounted the fact that contractors earn more than their permanent counterparts,” Chaplin told.
“Comparing the tax taken from a contractor and an employee earning the same amount is misleading because contractors typically charge more than the employees are paid. This is due to free-market forces, which dictate rates of pay. Firms are willing to pay more for short-term access to essential skills. Contractors are entitled to accept nothing less, especially since they are already surrendering employment rights and stability.
“Contractors who earn significantly more than their permanent counterparts inevitably generate a considerable amount more in tax, which is more beneficial for the Treasury. Meanwhile, flexibleto stimulate and benefit the economy. On a related point, another criticism leveled at the legislation is that it commands that like permanent employees, but workplace benefits – such as holiday pay, paid sick leave, and pension contributions – remain off-limits to them.
One IT contractor, who spoke to Computer Weekly on condition of anonymity, said: “I work for myself for the flexibility to, and I can’t do that anymore because I’m working inside IR35 and I’m a zero-rights employee as a result of this legislation. I pay all the taxes, national insurance, apprenticeship levy, and employer contributions to my pension. I spend my sick pay, my holiday pay, and when the – that’s it. I could easily have no work and no income.