It’s IR35 once more
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Taxation should not obstruct the industry of the people - Adam S
IR35 failed for the following reasons.
1. It was both unclear and uncertain - it needed to be both enshrined in law, and not to be decided by applying tax rules under existing legislation. No moving goalposts.
2. The definition of an 'employee' under employment law, needed to match the definition under tax law.
3. IR35 deprived a Company of retaining profit for expansion. Using bank loans covered by personal assets is not the way expand.
4. The artificial intermediate arrangement to protect end user liabilities needed to be scrapped.
5. Perceived 'unfairness' can seriously damage the economy.
When, I started my Company sixteen years ago, I fully intended to take on employees and expand. Within two years, I was delivering more taxation than my gross salary, when I was a permanent employee - a win win situation.
For me, managing six employees technically was about the optimum number. It became apparent over the years that taking on employees had ceased to be a simple arrangement, and had become more like a marriage taking on many 'civil partners', and providing benefits under a mini welfare state. You would need an employee to manage employment law. Add to that the costs of business premises - then forget expansion.
IR35 came along with a vengeance. The amount of time, wasted in the contracting world over this single issue, was beyond belief. People in their mid-fifties, like myself, soon adapted to the situation, and only worked six months a year. Why leave home at 5:30am in the morning to beat the traffic, live away from home, work maybe 70 hours per week to see the reward for your effort maybe or maybe not taken by the government? It was easier to live a more frugal and certain lifestyle.
Six years ago, I closed down the Company, effectively retiring, and delivering minimal taxes.
There is an unwritten covenant between the taxpayer and the Government. The taxpayer has an obligation to pay due taxes, and the Government an obligation to spend this taxation wisely.
Undemocratic European law making, expense fiddling by MPs, two unnecessary wars, devaluation of the pound by 25%, and bailouts of banking disasters are not part of my vocabulary.
Lazy HMRC
If there was an abuse of a person resigning on a Friday and then appearing at the same desk on a Monday working through a company, and let's face it, it did happen, HMRC (or IR as they then were) had the remedy already, simply expose these contracts as a legal sham, which they were, and pursue the end users as the genuine employers of these individuals. The revenue couldn't be bothered to use the existing rules, one suspects because they preferred a line of attack which would not just hit this form of abuse but drag in people who, in the opinion of the revenue, but not necessarily the law, should have been treated as employees. IR35 was a product of a government who would prefer people to be employees and union members (look at the drive against sub-contractors in the construction industry) and thought this would force people into, or back into employment.
In the construction industry there is the problem that a labourer will happily receive income as self-employed, but then when laid off claims to be an employee for the benefits this will bring. OK, so why not simply allow everyone who is a borderline case to opt to either be an employee, with all of the benefits that that confers, and they are considerable, or be self-employed and voluntarily sacrifice their entitlement to employment protection. In some areas - construction - this will be a problem as people will be forced to accept self-employed status against their better interest but labourers will usually be clearly engaged under a contract of service and so shouldn't be within self-employed status anyway. HMRC could adopt a situation similar to that which is extensively used in TV, Radio and Films, where certain activities are classified and can only be pursued on an employed basis, where other activities can be pursued as either an employee or a self-employed person.
It is likely that IR35 will go, or be heavily modified, but the real question now is what should replace it because going back to the former treatment is probably not a viable option anyway.