What sort of tax is IR35 going to be seen as?
This short Opinion Piece was originally published as IR35 is going to be seen as a BAD TAX! Since then, mainstream opinion seems to have been shifted – or shifted on its own accord – towards a more nuanced assessment. So we thought we also ought to adopt a more nuanced approach – maybe seeking circumlocution to avoid total desertion of our previous and long-held convictions!
Importantly – and surely no-one can disagree with this – is that if it looks like a duck – and if it waddles and if it quacks, then it is almost certainly a duck. In other words, if a piece of work looks the same as permanent payrolled work – in other words “disguised employment” – then that is what it should be treated as.
But the real argument is elsewhere. The impact of Covid, Brexit, technology and shifting personal attitudes has sown the seeds of major change towards – as always – what more workers want and what more businesses want. This is the bigger picture. Have a look at Diaspora Business Networks.
In our original piece we wrote this:-.
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.
Actually, we never quite got to the widely forecasted 5.1% but gradually came down to the current 4.7% and look highly unlikely to reach the 7.75% forecasted by many. However, we do need to reserve judgement at this time – the variables are changing all the time. Closer study of the ONS Employment Statistics is recommnended.
Nevertheless, 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 – the key driver behind Government thinking – 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. Building Back Better needs to use all the talents. Genuine gigworkers don’t want protection. They don’t want jobs. They want work.