On Thursday 4th April, MPs met in Westminster Hall to debate IR35 and the loan charge. They discussed how the legislation has impacted the public sector, the improvements that should be made to the private sector proposals and to voice concerns from their constituents.

The MPs present spoke out on behalf of contractors, reeling out a list of concerns that have been ongoing since the inception of IR35. Amongst the issues raised were the accuracy of HMRC’s CEST tool, workforce mobility after the private sector rollout and the need to align employment status in tax and employment law to protect vulnerable contractors, freelancers and the self-employed.

Despite the controversy surrounding IR35 from its announcement back in 1999, HMRC has yet to take heed of and act upon criticism of the legislation.

Public Sector IR35 Decimation

Last week’s debate marks an important juncture in the burgeoning culture of contracting. Self-employment is becoming more popular by the year and is responsible for a sizeable chunk of the UK’s economy. However, as several MPs asserted, if the Government continues to ignore those that are living with the effects of IR35, the contracting workforce will be decimated.

The public sector is a living example of how organisations can suffer from a decline in contractors as a direct result of IR35. The NHS has taken a huge hit in staffing levels while government projects like Crossrail are running appallingly behind schedule and over-budget.

During the debate, Anneliese Dodds MP argued that none of the main issues faced by the public sector had even been considered during the private sector consultation phase. This could mean that HMRC is not prepared to admit its mistakes, much less learn from them.

She stated: ‘If we can’t get it right in the public sector, these issues are only going to be amplified in the private sector.’

One of the biggest of these issues is rife non-compliance amongst hirers by way of blanket assessments. Ruth Cadbury MP relayed the concerns of a recruitment agency owner providing staff to the NHS, whose business had declined by 60% in recent years.

She stated: ‘What I’m being told is 99% of this agency’s workers are being unlawfully blanket assessed as ‘inside IR35’ and forced into unlawful employment without a fair assessment’.

Dr Iain Campbell, of the Independent Health Professionals Association (IHPA), has seen first-hand the staff crisis that public health services are currently facing.

He says on the matter: ‘ONS data shows that the number of self-employed doctors has plummeted by 20k and that we have 11k fewer doctors following the measures. The only IR35 tribunal case concerning a medical doctor that ever occurred was that of a junior doctor assisting in surgery and he was found to be outside IR35, yet 100% of health workers have found themselves blanketed inside the legislation.’

More criticism of CEST

Thanks to its inconsistent results, the CEST tool has added immeasurably to the epidemic of blanket assessments that have driven contractors out of the public sector. The employment status tool looks set to do the same thing in the private sector.

Ruth Cadbury MP addressed CEST’s shortcomings and its failure to consider mutuality of obligation (MOO).

Acknowledging HMRC’s own poor track record of applying IR35 in court, she asked: ‘How can HMRC implement a tool to return a correct IR35 result, when they can only get it right 50% of the time when they go to court?’

Paul Sweeney MP also took issue with HMRC’s questionable understanding of IR35. Commenting on the taxman’s pledge to educate and prepare the entire private sector on how to assess the status of their contractors, he summarised: ‘Should a teacher who consistently fails their own exams be the one chosen to teach the lessons?’

‘If HMRC cannot get assessment decisions right, is it fair to put these into the hands of firms who have a vested interest to avoid tax risk?’ added Sweeney, highlighting HMRC’s proposals that hiring firms administer an appeals process when a contractor disputes a status decision.

‘What’s to prevent firms from incorrectly claiming that the worker is caught by the legislation? HMRC has suggested firms should manage the appeal process themselves, but asking the perpetrator to judge their own situation is hardly a valid appeal.’

MPs warn against Loan Charge

As well as discussing the effects of IR35, Ruth Cadbury MP had earlier that same day voiced her concerns about the contentious Loan Charge in the House of Commons as part of a separate debate.

She highlighted IR35 as a root cause of the adoption of loan schemes, before warning that many others are now at risk as a result of the off-payroll rules.

Speaking on behalf of the Loan Charge Action Group's All-Party Parliamentary Group, she said: ‘Many professionals went into loan schemes because their accountants advised them that, due to the regulatory complexity and disproportionate cost burden of IR35, it would be best to enter into a loan-based remuneration scheme.’

‘There is another group of more recent joiners following the introduction of the public sector off-payroll rules in 2016. The word loan was never mentioned to them by the scheme providers, and they were often signed up by recruitment companies. It’s possible that many of these people don’t know that they are caught up in this.’

The condemnation of the loan charge spans political parties, with a growing number of MPs in agreement that the legislation breaches the rule of law and is, in fact, retrospective.

Treasury rehashes same old response

Debating MPs were left somewhat unconvinced by the Treasury Minister’s response. While many questions went unanswered (or outright ignored), others were met with cookie-cutter responses that have been regurgitated by HMRC week after week.

From attempts to downplay concerns over blanket assessments - including a reference to an out of date piece of research which asked public bodies about their own compliance while failing to consult with the contractors themselves - to avoiding admitting any emotional impact could be felt by the loan charge, the Treasury seem not yet ready to accept that their legislation needs to be reviewed.

See here for even more information on IR35 and how you can protect yourself against an investigation, or take a look around our Knowledge Hub for more contractor guides, IR35 news and expert advice.

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