IR35 is going to be here for many more years, with a new Government review claiming there are no “quick wins” with plans to reform the employment status framework.
In its Employment Status Review, recently released, the Department for Business, Energy and Industrial Strategy (BEIS) indicated that it will be years before any statutory changes are made. It also seemed to dismiss proposals to legislate a statutory definition of self-employment as a means of providing upfront certainty over status.
When will contractors see changes to IR35?
The report indicates that legal professionals are generally satisfied with the current employment status framework. BEIS argues that its flexibility has seen it adapt well to changes in the labour market, and that tribunals can adapt it further as employment forms evolve.
Wholesale changes to the framework aren’t ruled out however, though BEIS suggests it’ll be a long time before anything concrete is decided. This will involve further consultation, discussion and review to ensure the right balance is struck between the needs of both individuals and business.
This could be promising for contractors, having witnessed HMRC’s constant tweaking of the rules in the contract market. If a considered approach is taken, then perhaps it will eventually be easier for HMRC to distinguish between contractors and ‘disguised employees’.
Would a statutory test for self-employment work?
BEIS acknowledges that clarity over employment status is critical to a well-functioning labour market, and that more transparency is needed. As far as IR35 is concerned, a statutory definition of self-employment would mitigate the risk for contractors by offering this clarity.
But BEIS says this isn’t the answer, arguing that defining self-employment would remove the flexibility that tribunals and courts enjoy, whilst opening the doors to abuse of the system by exploitative employers.
IR35 - Employment status tool needs five years development
One potential solution BEIS acknowledges is the use of online tools to determine employment status upfront. However, it also stresses that it would take five years to develop one that’s accurate enough.
This is a view that we at ContractorCalculator have expressed regularly over the past few months. Having spent seven years so far developing our own IR35 tool, we are well aware of the intricacies of building a solution that can accurately signal IR35 status on a consistent basis.
So it’s a concern that the message emanating from HMRC is in such sharp contrast with its fellow Government organisation. With the arrival of its Employment Status Service (ESS) tool due after less than one years development, the taxman doesn’t seem to think IR35 and employment status is as complicated as the legal experts make out.
Whilst HMRC attempts the quick fix BEIS warns against, our solution is ready-made and, most importantly, meets BEIS’s criteria. Introduced in 2009, IR35Shield.co.uk has undergone seven years of development, and is grounded in the necessary IR35 and employment case law expertise. And we aren't making wild claims of being able to deliver certainty in binary manner the same way HMRC do. Our answer is on a 19-point spectrum. Try it for free.
HMRC ESS evaluations are open to legal challenge
Naively, HMRC has also committed to be bound by the outcome determined by the ESS tool. However, as BEIS points out, it is impossible to be absolutely certain of an individual’s employment status in every instance.
BEIS acknowledges that a binding decision isn’t possible outside of the courts, despite the taxman’s intentions, adding that any guidance offered would be heavily caveated and open to legal challenge.
With HMRC expected to unveil the ESS tool in early March, the fact that it is being – although indirectly - undermined by BEIS will be of grave concern to potential users.