IR35 is going to be seen as a BAD TAX!
Government IR35 thinking is primarily about two areas of principle – tax dodging – which they are against – and worker protection which they are in favour of. Quite rightly, too! UK employment law is largely inherited from the EU – some of which the Government did not like at the time but will, nevertheless, be keeping.
The imminent Government IR35 legislation – due in April – which – in large part – will now convert many independent workers into unwilling employees in the private sector draws attention to current major policy and process which is now no longer fit for purpose.
Clearly, where Independent working is disguised employment, they should be taxed as employees but they should also receive the same employment benefits as resident permanent employees enjoy – which is not generally the case under current IR35 legislation. Genuine gigworkers don’t want protection. They don’t want jobs. They want work.
Post Covid businesses and employment conditions will make this more obvious as the number of Independent Workers will increase substantially mainly due to higher levels of unemployment – the longevity or amount of which is not currently known. At the end of 2020, unemployment was 5.1% – and the Bank of England are now predicting this to move to 7.75%. The logic – at worst – is that it is preferable to be an Independent worker with no work – but trying – rather an unemployed worker sitting at home watching Flog It on television. At best, it could – should – be a life- changing crossroads to something permanently better.
There are other major features becoming influential in how independent workers need to be viewed. Major changes are now becoming evident in technology, structural sector changes, post Brexit impacts. working from home sentiments and post-Covid physical and mental health hang-over issues. A growing view is that national levels of independent workers – gigworkers – may well be moving towards being half of the 33m UK working population.
For other workers, IR35 decisions are largely based on subjective judgement guidelines – argued differently by parties with different agendas – but with the final arbiters now being the engaging clients and/or HMRC. Both these groups – who invariably opt for “advising” going on the payroll – can’t possibly want to be involved in these contrived and unwanted activities.
One solution to the issue of tax dodging can be resolved by creating a new type of Personal Service Company.
The government should create a new type of limited company which any independent worker may set up and trade through. Normal rules for limited companies apply except that this type is forbidden to pay dividends and remuneration to family members not formally employed in the business. Taxed. They would file quarterly reports – virtually identical to the VAT system – and pay over PAYE and NI relating to remuneration paid out by the company during that period. In this way, legitimate expenses can be charged in accordance with company and tax law and the engaging client company has no responsibilities in this regard. If, and when, wound up, any surplus would be deemed to be income of the Directors at the time of winding up.
What we have learnt about current government knowledge about this sector of the UK workforce has to be based on the hesitant, piecemeal and contentious ways in which it has approached supporting financially the self-employed over the past year. Given all these huge changes now afoot and the current ambitious and exciting future now being promoted for the global and enterprising UK and all its go-getting and re-energised peoples, it has to be timely to change IR35 and all its negative thinking. Building Back Better needs to use all the talents