Public Services > Central Government

IR35 is not about saving tax: it’s about protecting public services

Published 06 June 2017

Ethical Consulting managing director Mike Gibson says a version of IR35 is needed and valuable. But it needs to be appropriate and take into account the widest needs of our economy

 

HM Revenue & Customs' (HMRC) response to Dave Chaplin’s article criticising HMRC’s own IR35 tool is troubling. HMRC’s attitude demonstrates how fundamentally they have failed to understand the concerns so many of us have following the change of emphasis in applying IR35.

The vast majority of people who find themselves deeply troubled by the change to IR35 do so because it has brought an iniquity between public and private sectors, it reduces flexibility in the economy that our public sector needs and adds cost to public sector services which are already creaking under the burden of austerity.

The final sentence of HMRC’s thinking says, “The attempt to make this complex is a rather puny attempt to divert from the self-evident truth, that some contractors are not really contractors at all and don’t like being asked to pay the correct amount of tax due in law.”

The fact is that IR35 absolutely is extremely complex and to suggest otherwise is simply disingenuous. Matters relating to direction, individual substitution, legal entity, apportionment of activity, term of contract, contract terms and conditions, mutuality of obligation, and many others all need to be considered in an IR35 determination. It is even relevant whether the contractor is permitted to eat in a subsidised canteen or whether they wear a client’s ID badge! So please HMRC, do not patronise us by pretending IR35 is not a complex instrument.

It is important to be absolutely clear here – a version of IR35 is needed and valuable. But it needs to be appropriate and take into account the widest needs of our economy. As we stand it has created an overhead burden and increased costs for public sector organisations - for very little additional tax revenue gain – if indeed the tax take has risen at all. We will have to wait a year or so to discover if that is the case but anecdotal evidence suggests that contractors are compelled to raise their prices to compensate – which means the public sector is bearing additional costs.  So one arm of government demands ever more efficiencies whilst another undertakes actions that puts up costs. How is that fair or sensible?

We have already seen the NHS’s blanket ‘inside IR35’ position being effectively declared illegal in  the challenge by the Locum Doctors Union represented by Michael Paulin. A more sensible, collaborative and equitable approach to the changes in IR35 would have meant these kind of issues would have been debated at length - and avoided. The rush to action with such inadequate consultation has led to an unsatisfactory situation.

We currently have an economy that could be described as volatile. The economy needs careful management in order to bring the deficit back under control. As a country and as individuals, we cannot spend more than we earn so, however painful it has been, most accept the need for austerity. However, contractors bring a flexibility to the economy that is very important. The more rigid our economy, the less easy it is to withstand global crises such as the events of 2008.

Councils have borne the pain of austerity and delivered astonishing outcomes in the most challenging financial environment in their history. The simple fact of IR35 is that public sector organisations now have to pay more than the private sector for exactly the same activity. How is that fair?

Our public sector organisations deserve our support and that is why so many people believe that IR35 needs to be challenged so that it can be tweaked to work fairly and intelligently. Everybody should pay the appropriate amount of tax and on that subject, there is no debate. However, when the tax instruments result in unfairness, or damages the flexibility of the workforce and economy, is it not right to seek to change it to make it more equitable and to work in the widest interests of the entire economy?

Over the last 30 years, I have worked with 59 UK local councils and I know them to be providing outstanding outcomes. I continue to raise concerns with IR35 because I believe our public sector deserves it. IR35 unquestionably has a role – we just need all parties to work together with mutual understanding and empathy to deliver a taxation instrument that is fair and meets the needs of the economy as a whole.

If you agree, please contact me via LinkedIn or at mike.gibson@ethical-consult.co.uk

Mike Gibson is managing director of Ethical Consulting








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