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IR35 – Tax does not have to be taxing! Really?

Paula Ellis gets the views of Jim Marshall on the private sector implementation of IR35.

Jim has been involved in the business of matching corporate assignments with professional contractors for the best part of two decades. He has been engaged by major blue-chips to consult on the impact of IR35 and is a trusted advisor to numerous professional contractors.

Here is what he had to say to my 5 key questions:

1. Will Boris save contractors from IR35 reforms?

Unlikely, I think private sector reform will still go-ahead for April 2020. It is ill-thought out legislation, but it has gained momentum. I expect Boris has enough on his plate as we accelerate towards a hard Brexit. Ironically, I believe that a significant driver in maintaining economic growth and stability in the UK economy relates to our ability to quickly and efficiently deploy commercial and technical expertise. Now, possibly more than at any point since the 1950’s, we should be looking for ways to incentivise (rather than slow) the Professional Gig Economy.

Those with an apparent grasp on what the future might look like point to: the increasing success of small agile entities with fluid workforces. These less structured organisations (if indeed there are formal organisations in the traditional sense at all) will drive change and innovation and will embrace problem-solving by drawing on the expertise of those who can be engaged. If the UK wants to lead on Innovation then disincentivising the movement of our strongest resource (human expertise) is surely counterproductive.

I do not actually like the term ‘contractor’ – it has, because of past abuse, a mercenary feel. Most modern contractors are Flexible workers of the Professional gig economy. They allow companies to buy in expertise for a specific period and for fixed costs. Most major Business and Technology Transformation projects rely heavily on our flexible friends. (Our ability to truly embrace Digital transformation is very heavily reliant on the contractor workforce). However, ‘contractor’ is a term that is universally understood to mean a human resource that is not specifically employed to by the hiring organisation so on that basis we continue to use it.

2. Are we ready for April 2020?

I believe most intermediaries (agencies, brokers and consultancies) are reasonably well down the preparation journey. Most contractors are aware of the change, but like the intermediaries, are uncertain about the future. Many consumers of contractor workforces [end clients] are, in our experience, ill-prepared and very uncertain of their responsibilities.

I think a postponement would be sensible and valid. I do not believe the CEST tool provides employers with clear enough guidance; it is too easy to determine the outcome as key components e.g. control, risk, can be both subjective and ambiguous. I also think we could look at some obvious exemptions based on, for example, assignment duration or where a contractor’s limited company is genuinely engaged by multiple customers. I do not think there will be a postponement.

3. Will all Professional Contractors be affected?

No, there are a large proportion of contractors who recognise that their engagements are within IR35 and the according levels of tax and NI are paid by the individual and their company. There are also a proportion of contractors who engage in pure deliverable risk-based assignments whom are correctly outside of IR35.

It is important to remember that IR35 legislation has not changed, the reforms are about (in HMRC’s view) a better way of ensuring compliance. It is interesting to note that HMRC view two-thirds of Private Sector as compliant. So 33% are not compliant?

Yet, court case history would suggest the court win rate is less than 7%. If you consider HMRC surely chooses cases it thought it would win, the actual % of noncompliance is surely much lower. By keeping the legislation and guidance vague it looks like HMRC are seeking to capitalise on uncertainty and fear.

4. Is IR35 unfair?

Accepting that ‘fairness’ is a childish concept, I believe the principle is fair (why should a contractor pay less tax and earn more when they are, in effect, employed – as long as the rate compensates for the lack of employee benefits and rewards the risk they are taking in not having a permanent job). The implementation is not ‘fair’ and the guidance weak. There will be a huge amount of unnecessary bureaucracy. The sort of red tape this government promised to release business from.

5. What is Marshall Wolfe doing to help both their clients and their contractors?

Marshall Wolfe has produced a guidance document – please email Paula Ellis on paula@marshallwolfe.co.uk to obtain a copy. However, as has always been the case, we have a consultative approach. Sanchia Marshall, Dean Robinson, Vaughan Clarke, Amber Hunt, Paula Ellis, Jim Marshall and Liz Hunt have over 60 years combined experience in organising contract assignments. Always happy to share thoughts over a coffee and try to help you determine the optimum approach based on the information available. We also have a strong network of advisors with whom we are happy to connect you with.

Apologies – we tried to write a short response on these, but the combination of unnecessary complexity and exasperation resulted in the above.

Those who know Jim Marshall describe him as honest and fair. He brings you his thoughts to the best of his knowledge. Disclaimer: These are brought for the purpose of discussion and in the hope that they will help to result in a fair outcome for contractors and The Treasury. He does not have the Accountancy or Legal qualifications to provide any of the above as ‘advice’.

If you feel there are any inaccuracies or have a conflicting opinion we would love to hear from you. We have strong opinions loosely held!

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