Self-employment tsar puts IR35 in his sights

Numerous attempts to simplify IR35 have failed and the unduly complex legislation should be scrutinised again, the government ambassador for self-employment has declared.

Conservative MP David Morris singled out the “unnecessarily complicated” Intermediaries Legislation last week, after being re-appointed by David Cameron to his ambassador role.

Seeming to direct the PM as to where he will “come up with new ideas,” Mr Morris said he would “like to tackle IR35”. The timeframe he gave for new ideas was “the coming months.”   

His comments come in the same month that an employment lawyer spoke of “concern” about the idea of introducing a statutory employment test in the shape of the so-called ‘80:20’ rule.

Writing in HR Magazine, Darren Hayward of law firm Nockolds was referring to a proposal by the Office of Tax Simplification – one of four bodies that has reviewed IR35 to try to improve it.  

He did not cite the other three; HM Revenue & Customs (administrative reforms to IR35 in 2012); the PSC Committee and the IR35 Forum, but he did warn against a second OTS idea.

“Another suggested rule is that an engagement lasting more than, for example, six months would automatically be deemed an employment relationship,” Mr Hayward wrote.

“Considering how many contractors and freelancers derive all of their income from a single source and are engaged for years by the same end user, the statutory test could have a profound impact on the UK’s flexible workforce”.

But the so-called ‘six-month’ rule is an idea that the OTS itself acknowledges would have significant drawbacks, says Chris Bryce, chief executive of contractor trade body IPSE.   

In a statement to ContractorUK, Mr Bryce also said: “We’ll be liaising closely with the new Government to find a solution that works for independent professionals that is simple, fair and above all enables them to work without unnecessary complications.

“The idea that you would become an employee after six months working for the same client doesn’t meet these criteria.”

Last week, the OTS indicated that IR35 – or more specifically the subject of “employment status” – is the joint-fourth largest cause of complexity in the small business tax system.

In a new study on tax complexity, the OTS designated an unbeatable ‘5 out of 5’ score for the net average cost per taxpayer (including professional fees) that IR35 imposes, describing it as “high.”

The OTS also gave the “highest” possible complexity rating to HMRC’s guidance on IR35, having assessed it for factors such as length and ease of navigation for taxpayers.

Mr Morris, the reappointed self-employment tsar, seems to agree. He told Mr Cameron: “One of the things I would especially like to tackle is IR35 which has always been unnecessarily complicated.”

The Association of Independent Professionals and the Self-Employed (IPSE) welcomed Mr Morris’ comment. “It’s very clear that IR35 has caused a lot of uncertainty, administrative burden and expense for many independent professionals,” said Mr Bryce.

“We’re pleased David Morris MP has committed to investigating this issue and we look forward to discussing a way forward. Our desired outcome is an environment where contractors are able to get on with the job knowing that their tax status isn’t under question.”