Once again we must unite and fight IR35
The proposal to change the way IR35 works in the public sector carries the hallmarks of the original vision for these arcane rules, writes IPSE Consultative Council member Philip Ross.
We all know what IR35 is, unfortunately. But not everyone knows what it stands for. It is derived from the Inland Revenue press release 35, from the then Labour government’s 1999 budget.
What is significant is that the Inland Revenue had hidden away the announcement at the back of the budget book in the hope that no-one would notice it, until it was too late. Unfortunately for them, but fortunately for us, what was to become the Professional Contractors Group (PCG), which is now known as IPSE, did notice and were able to mobilise freelancers and other small business owners to oppose it.
The original proposals were that clients and\or agents would assess engagements to see if they were in fact ‘disguised employment’ and if so deduct tax and national insurance, as if it were a PAYE engagement – exactly as they are proposing now in the public sector. IR35 was officially called the ‘intermediaries legislation’, which didn’t really explain much. So we adopted the short hand of IR35 as it worked much better to get across quickly what it was about and how it worked.
A huge letter and email campaign followed, led by IPSE, which included the first ever ePetition to Parliament. MPs’ mailboxes overflowed as the new PCG/IPSE co-ordinated a revolutionary campaign. This included a mass lobby of Parliament with over 1,000 people in attendance.
Pressure piled on and as a result the Government climbed down. Tax and national insurance wouldn’t be deducted at source. Contractors and freelancers would instead be subjected to self-employment tests. It meant that they could judge for themselves if their engagements were caught and the Inland Revenue had the option to investigate suspicious cases and take them to court.
Something then happened that the Revenue didn’t expect: IPSE backed cases and fought them hard, so much so that the majority were clearly won by IPSE. Every case won can set a precedent, which is how case law works. This worried Revenue and the result has been that it has been reluctant to bring cases to court in fear of losing them.
However, I am told that officials at HMRC are frustrated. They believe that many freelancers are not complying with IR35. But every time they try to prove it they lose.
That why there looking again at the legislation. HMRC can’t win the argument in the courts, so they’ve dusted off the original 1999 legislation and rehashed it. The current proposal is that payments to freelancers working in the public sector, if their contracts are deemed to fail IR35 tests, will have tax and national insurance deducted at source.
HMRC prefer this because they can get the money first and then we have to argue to get it back. As the saying goes, possession is nine-tenths of the law. Again it will be the agents or the clients who will do this assessing. Have no doubt they will be risk averse.
In short, because HMRC can’t set a precedent in case law (they have failed spectacularly in this over the last 17 years) they are reverting to sneaky legislation.
The latest plan is a mess; it is badly thought through and unlikely to work. Contractors will leave the public sector as a result of this proposal and public services will not be delivered on time. The only real beneficiaries will be the larger consultancies who will be brought in to resource the projects but at a much higher cost to the taxpayer.
Do you think that this won’t affect you because you don’t work on public sector contracts? You are wrong. It will, because the whole idea is to set a precedent, it couldn’t be done through case law so they will do it here. Despite the assurances they have given, the Government will move the rules from the public to the private sector in due course – mark my words.
We need to come together as we did 17 years ago. We have an excellent team at IPSE, but they need to have the freelancing community firmly behind them writing letters to their MPs. We need to ensure that every MP gets a letter from concerned constituents on this.
I think this Government is sensible and if we put the case to them, then we can get rid of this. But it won’t happen by magic - it needs us to write letters and stand up for ourselves.
Philip Ross is a founding member of PCG, now IPSE, and its first External Affairs Director. He writes in a personal capacity.