IR35: Government takes four years to achieve 'next to nothing' on employment status

A “lip service” response by the government to an employment status consultation with IR35 in scope has emerged very belatedly -- four years after it ran.

But despite having since February 2018 to produce proposals, the only tangible outcome of the business department’s 55-page consultation is a new six-section overview of the topic.

Three experts; lawyer Rebecca Seeley Harris; accountant Helen Christopher and ex-FCSA CEO Julia Kermode said (independently of each other), ‘the wait has not been worth it.’

'Government has decided to do nothing'

The government says no change to the three-tier employment status framework will occur, as the categories of employee, worker, and self-employed, “provides the right balance.”

There will also be no legislation to improve the clarity of employment status tests, nor will alignment between rights and tax take place.

In short, and in the words of Ms Seeley Harris’ off-payroll rules advisory ReLegal Consulting, the government has “decided to do nothing.”

'If irony was measured in sound, we'd all be deaf'

But it is the explanation from the government for its own inaction that really bothers another IR35 expert, Kate Cottrell.

“The government says that although it recognises that a change would bring clarity in the long term, it cannot do anything, as it will result in ‘cost and uncertainty’ for businesses.

“Well,” continued Bauer & Cottrell’s co-founder in a statement to ContractorUK, “if irony could be measured in sound, we would all be deaf.

“This; from the same government that a year ago ploughed ahead with the off-payroll rules – which were and still are, the biggest cause of ‘cost and uncertainty’ for businesses -- ever”.

'Too difficult a problem for government to solve'

Despite the government consultation potentially having implications for IR35, the business department somehow manages to avoid naming the rule once in its 32-page response.

The government avoiding the term ‘off-payroll rules’ (which also fails to appear in the July 26th response) isn’t a surprise to Ms Christopher, operations director at Orange Genie.

“It seems that the government are choosing to do nothing because the problem is too difficult [to solve]”, she says.

“And while CEST is mentioned [in the government’s response] there is no suggestion that it will be further improved or developed.”

'No good news for limited company contractors'

The chartered accountant added that leaving the status quo on status intact represented “no good news for limited company contractors”.

“[These workers] might have hoped for some clarity around the tests for determining their IR35 status,” Ms Christopher explained.

“And certainly no alignment of employment rights with employment taxes for those operating inside IR35 [will deal a further blow to this contingent].”

'To be expected'

Seb Maley, who reviews contracts for IR35 at Qdos echoed: “It’s taken four years for the government to get round to responding to its own employment status consultation, only for them to rule out aligning tax status and employment status.

“This means contractors operating inside IR35 -- of which there are many more following reform, will not be granted employment rights in exchange for being taxed as an employee.”

Most in the contractor sector won’t be surprised however, according to a director of a payroll solution firm, who believes no help for IR35-caught contractors “was to be expected.”

'No contractors left'

Similarly taking to LinkedIn, an IT-business adviser claimed the government isn’t touching status, or IR35, because the April 2021 framework “is doing exactly what it was intended to.”

“How; by making working [inside] IR35 so difficult that you end up with no contractors left?” replied one consultant, disagreeing.

A facilities management specialist, the consultant added: “How does that ensure that the UK has a skilled, flexible workforce? If people must work inside IR35, they should at least have the same rights as those on PAYE.”

'No overall consensus'

Elsewhere online, others pointed to the government almost blaming respondents to the 2018 consultation for not having a single solution that they all endorsed.

“There was no overall consensus on what action the government should take,” reflects Chartered Institute of Taxation president Susan Ball, directly quoting the consultation’s reply.

The government reply adds: “Respondents agreed that there was no easy solution, and it would be complex to implement any reform around employment status.”

'New employment status guidance by the government doesn't make it easier'

But Ball, who specialises in employment tax issues, said that even in relation to what the government has newly unveiled – the six-section overview, it is not necessarily helpful.

“I would be interested to know if employers think it helps,” she said doubtfully of the guidance, which is aimed at HR officers, legal professionals, and individuals.

Ball added: “It does include case studies, checklists.

“But [the guidance] does not make it easier to navigate the legal and tax positions, particularly where you end up with a ‘worker’ under employment law, and that category does not exist for tax purposes.”

'Long grass'

With complexity, uncertainty and ambiguity still prevailing on status -- in light of the government not grasping the nettle, advisories are doing the rounds.

Brookson, which accused the government’s consultation reply of kicking The Taylor Review-inspired Good Work Plan into the "long grass," advises: “Given this outcome, we would advise business to remain vigilant over the tax status of their workers and flexible workforces.”

Brookson's managing director Matt Fryer says this represents the best advice for engagers who want to “remain compliant with the current [HMRC] rules.”

Mr Fryer added: “Expert tax advisers will be able to help HR directors and agencies to navigate this complexity, and ensure that policies are in line with [employment status] case law.”

'A complete and utter waste of time'

However one expert tax adviser, Ms Cottrell, will no longer be playing along.

“When this [examination of employment status] was launched four years ago I made the decision to simply ignore it based upon my previous experience of spending considerable time and energy, without charge, responding to other consultations and calls for evidence, because they all proved to be a complete and utter waste of my time. 

“Well I was right. Four years on and clearly this is another example of lip service being paid to the consultation process -- the requirement to consult interested stakeholders, but with no intention from the government of actually doing anything. Next to nothing has been achieved.”

'Longer-term options'

A former tax inspector and ex-HM Treasury secondee, Ms Cottrell added: “Even if the government does agree something should be done, it is all at some future date -- that never comes around”.

The business department said: “Noting the lack of consensus around alignment, the ongoing economic recovery from the pandemic, and the wider economic context, the government has decided that now is not the right time to bring forward proposals for alignment between the two frameworks. We will, however, work closely with stakeholders to explore longer-term options”.