Contractors slam UK taxman's 'aggressive' IR35 tax reforms

HMRC urged to adjust plans after losing case against one of its own former freelancers

HMRC should rethink its "aggressive" approach to IR35 tax reforms as it looks to extend them to the private sector, tax insurance provider Qdos Contractor has warned.

According to Qdos, the UK taxman's approach to the changes is perceived as a threat to the self-employed way of working – at a time when political uncertainty and concerns about a no-deal Brexit might make it all the more important.

The government is tightening up tax rules on off-payroll working to squeeze contractors for more cash. Broadly, it will shift the liability of determining contractors' IR35 status from the contractors to the organisations hiring them.

The process started with the public sector – a move that caused a mass walkout of IT staffers – and is now taking shape in the private sector, which could affect some 2 million contractors. Many of those likely to be affected work in tech or engineering.

The majority of the 800 contractors surveyed by Qdos – some 94 per cent – said that HMRC's approach to IR35 has been "aggressive" rather than fair.

And 91 per cent said the government's attitude was threatening the self-employed way of working. A separate survey of 650 contractors carried out this month found that 94 per cent felt the government saw the self-employed as a soft target.

"Contractors quite understandably feel targeted by the government, and have been largely impacted by last year's public sector IR35 reform. These individuals want a tax system that actually works for the self-employed," Qdos chief exec Seb Maley told El Reg.

He said the fact that reforms are taking place while large corporations are still underpaying their tax bills exacerbated these feelings.

Qdos is particularly concerned about the number of people placed inside IR35 incorrectly, as this means that they are taxed as if they were an employee but don't get any employment benefits.

HMRC photo via Shutterstock

UK taxman told: IR35 still isn't working in the public sector, and you want to take it private?


Even the government's own tool (Check for Employment Status for Tax, CEST) has been slammed as inaccurate – a former HMRC inspector recently said it was "hopelessly unreliable and biased" and not fit for purpose.

"With private sector IR35 reform looking likely and with it, the risk that many more contractors will be placed inside IR35 incorrectly, this is something the government cannot ignore for much longer," Maley said.

He claimed contractors investigated by HMRC face "huge financial uncertainty" and called on the department to police IR35 fairly, and only investigate cases where there is a high chance it is necessary.

Maley also pointed out, as did The Register yesterday, that a contractor working on marketing projects for HMRC had recently won a major IR35 case against the taxman.

The staffer had claimed for holiday pay after she was deemed to fall inside IR35, but had not received any employment benefits.

"This case sets a huge precedent, showing that individuals taxed as workers and not as contractors deserve employment rights," Maley said. "It could well be the catalyst for many more cases like this."

The government's consultation on extending the reforms to the private sector closed last month and has yet to issue a report. ®

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