The UK government had introduced the tax legislation IR35 back in 1999 to tackle tax avoidance problem. The tax bill was intended to recoup £200 million a year for the exchequer. However, the government was able to recoup only £1.5 million per year between 2002 and 2007, according to the Professional Contractors Group Freedom of Information report.

Last year in April, the current Chancellor of the Exchequer Phillip Hammond had stated that public bodies would be responsible for enforcement of IR35.

Now, the HM Revenue of Customs (HMRC) has introduced consultation on plans to extend the off-payroll working rules to the private sector. This could affect nearly 2 million contractors who are employed in the private sector.

Confusion and Uncertainty Regarding the IR35 Consultation

Over the past few years, HMRC approach to consultations has been to have the market spend a lot of time in submitting responses, and then outright reject them. As a result, industry experts are understandably less optimistic this time around, and instead of challenging the plan are focusing on when it will be implemented.

PRISM Association – a trade body representing professional payment intermediaries sector in the UK –  has voiced criticism of HMRC’s current approach to new legislation. The organization has identified dozens of incidents in which the authority was found to have made faulty decisions due to the complexity of tax rules, which contributed to confusion and tension in the market.

At a recent roundtable conference organized by PRISM, most experts had agreed that the current approach to enforcing new legislation was not working and a different thinking was required. HMRC was accused of manipulating the facts to make a case for the IR35 reform.

In addition, experts have criticized the tax agency for not listening to the concerns of businesses and accountancy bodies and not delivering reasoned responses regarding the matter that impacts over 5 million livelihoods in the UK.

The silo approach of HMRC has been heavily censured since it is contributing to confusion and complexity in the market. PRISM has stated that the long-term solution to the problem is to introduce reforms that create certainty of outcomes. There needs to be a strategic review that allows structural reform to remove Employers National Insurance (NI) threshold and reduce the headline rate for the taxpayers. All this must be considered to ensure that the IR35 does not cause negative reverberations in the market.