‘How Contracting Should Work’: MPs issued 12 recommendations on IR35 reform’s eve

Twelve recommendations to the government about ‘How Contracting Should Work’ have been published in a report by MPs.

Being welcomed for spotlighting historic, current and future issues in the contractor sector, the report came just two days before a central focus of its 90-plus pages applied -- IR35 reform.

In fact, the Intermediaries legislation dominates two of the MPs' recommendations, but the resulting off-payroll rules (of 2000, 2017 and 2021) actually relate to many more of the 12.

Their recommendation 2 for example states:

“We call on the government to accept that it is unfair for workers who are taxed as employees to be denied the rights and benefits of an employee or recognition in employment law.”

'IR35 led to loan charge scandal'

Written by the Loan Charge APPG and based on evidence collated since December 2020, the report says that the new IR35 rules should be “looked at”, again, by HMT and HMRC.

Below this familiar call for an IR35 review (‘key recommendation 3’), the MPs say that their historic focus, as a cross-party group, and the new off-payroll rules are inextricably linked.

They write: “This failure to properly align tax law and employment law is, in our view, at the heart of the whole Loan Charge scandal, the ongoing operation of schemes and the current uncertainty created by the roll-out of the off-payroll working rules.”

'Comprehensive report'

Key recommendation 5 from the MPs in their report, commended by campaigner LCAG as “comprehensive”, is designed to combat that uncertainty.

The MPs say: “We request that [recruitment agency body] the REC consider publishing clearer and stronger guidance about what is ethical and acceptable when it comes to the charging of fees for being on preferred supplier lists.

“We would particularly like to see the REC state that no recruiter, whether a member or not, should ever insist on undisclosed kickbacks.”

'Kickbacks, like fitted kitchens, never advocated'

Crawford Temple, CEO of Professional Passport, used his evidence to the APPG to highlight an article he wrote for ContractorUK, precisely on the issue of ‘agency kickbacks’.

And the MPs link to the article on ContractorUK in their now-available report.

“This is something we have never advocated or approved of,” submitted Mr Temple, referring to kickbacks to the agency, which the MPs heard for some recruitment directors apparently extended to pre-paid credit cards, luxury holidays and even fitted kitchens.

“If such payments could be banned,” Mr Temple continued, “we believe it would help improve compliance across the marketplace.” 

'Investigate if forced brolly usage led to contractors being investigated'

To help with transparency, the APPG wants it to become “mandatory” for recruiters to have to tell candidates “in writing” if umbrellas being recommended have given them a kickback.

But for its key recommendation 6, the all-party parliamentary group goes even further in a bid to tackle ‘historic’ kickbacks which may have landed contractors with the Loan Charge.

The MPs state: “There should be an investigation into cases where a recruitment agency that is an approved provider to a public sector organisation, or a public sector organisation themselves, has recommended or obliged workers to use an umbrella company and/or where that worker has found themselves facing HMRC action as a result of being in a disguised remuneration/tax avoidance scheme.”

After tabling their most topical recommendation -- that the withholding of holiday pay should be made unlawful, the MPs table further improvements concerning HMRC, for their  recommendations 7 and 8.

'Pernicious, malicious, and brain-washed'

But a tax dispute specialist has suggested that the section detailing both these recommendations, ‘Action to shut down tax avoidance schemes and stop mis-selling,’ might need a cultural reform package bolted on, if HMRC is to finally start assisting taxpayers who work as contractors.

Reflecting at the weekend, WTT Consulting’s tax director Graham Webber said: “In my personal opinion, the loan charge is the most pernicious piece of legislation I have seen in my long career and it is being applied with malice.

“I'm sure that some HMRC officers may personally think that the loan charge is unfair but if so, I've not spoken to one despite having many, many conversations with them.

“The ones I speak to are either of the view that the charge is entirely justified and that contractors ‘should not be surprised,’ that tax avoiders deserve all they get [and] that contractors should be prepared to pay what they owe. Perhaps they are all brainwashed by the policy, scared to show any compassion, knowing that showing weakness is not conducive to a career path in HMRC?”

'Restrict some roles to employed only'

Towards the end of their report, the MPs make a recommendation on an issue that a ContractorUK reader received a status expert’s answer about only last week – how short-term contracts requiring highly-skilled professionals can somehow be ‘inside IR35.’

Issuing recommendation 11, seemingly trying to protect workers from both ‘schemes’ and IR35 implications, the Loan Charge APPG’s report says: “The government should examine whether there should be certain roles in certain situations where an employer must engage fully employed permanent workers and not self-employed contractors or freelance staff.”

'Government must clean up contractor supply chain'

Labour MP Ruth Cadbury, the group’s co-chair reflected: “If it is serious about clamping down on tax avoidance schemes, the government must legislate to clean up the [contractor] supply chain and proactively stop schemes as they start, rather than merely trying to take retrospective action after the event. 

“We also call on the government to commence the review they promised to look at all these issues and how best to recognise and structure contracting and freelancing.”