Westminster is being urged to “fix or ditch” current off-payroll working tax rules ahead of the upcoming spring budget.
While acknowledging that a U-turn on the policy is “unlikely”, Dave Chaplin, chief executive of IR35 Shield, says amending the law would help to “win back the trust of the self-employed”.
He also decried the current state of play, describing it as “misaligned with Conservative values and impeding UK growth”.
Jeremy Hunt will deliver the second major fiscal statement of his tenure as Chancellor a week on Wednesday.
Energy, and oil and gas in particular, was a key focus of his autumn budget, announced in the House of Commons in November.
There was a cranking up of the government’s windfall tax on the sector, something industry is calling on Mr Hunt to reverse this time around.
As part of a number of U-turns on polices from Liz Truss’ short stint in Number 10, he also axed plans to ditch IR35 reforms, first rolled out in 2021.
Given the initial announcement of plans to ditch the rules were met with jubilation, the reversal sparked fury, and even claims it could cost the Conservatives the nest general election.
Now, with Mr Hunt readying his fiscal statement once more, there are calls for him to make off-payroll working rules a priority.
Mr Chaplin said: “John Redwood MP believes that the IR35 reforms should be reversed because the self-employed have got a ‘bad deal’ as a result. His observations are spot on – the legislation has inflicted damage on the economy, is holding back UK businesses and punishing the flexible workforce. In its current form, it is unfair, misaligned with Conservative values and impeding UK growth.
“Off-payroll needs to be fixed or ditched to win back the trust of the self-employed and whilst we are unlikely to see a U-turn, some straightforward amendments to the law would go a long way to achieving that.
“The double-taxation flaw is crippling. It sees contractors and firms paying taxes on the same money and firms receiving tax bills four times more than they should. Surely, this is the antithesis of conservatism.
“HMRC has known about this flaw since March 2018, but never warned Ministers in its associated impact statement when the legislation was pushed through Parliament.
“If the Government wants to entice the 50+ grey-haired army of professionals back to work, to apply their skills on much-needed UK projects, it will need to fix the mess that HMRC and the Treasury have made.”
Implemented by Her Majesty’s Revenue and Customs (HMRC), IR35 reforms put the responsibility on firms to decide the status of contractors.
If the work they carried out is similar to a regular employees, they are deemed to be inside IR35, and have to pay more tax.
Businesses face lofty fines if they’re found to not be IR35 compliant, leading many to implement blanket rules.
Given oil and gas companies frequent use of contractors, the changes have had a big impact on the sector, and some blame it for the ongoing energy skills shortage.
Research has also found that the intricacies of the current system are were putting businesses off using contractors, and has reduced the pool of freelancers.
Crawford Temple, CEO of Professional Passport, a payment compliance firm, said: “Whilst I don’t expect IR35 to make an appearance on the Chancellor’s agenda, I would urge him to take a long hard look at HMRC’s Check Employment for Status Tool (CEST) and finally recognise that it needs to be withdrawn from use. It must be the most expensive free tool on the market when you look at the eye-watering penalties that Government departments have faced over the last year or so because they used CEST and got the determinations wrong.
“Moreover, whilst getting those determinations wrong it has unfairly pushed contractors into PAYE roles as well as into umbrella working against their will. Some of those workers have also been duped into signing up for dodgy disguised remuneration schemes purporting to be umbrellas and the Government has been slow to take visible action to shut such schemes down. With plans shelved to introduce a Single Enforcement Body, it is more vital than ever that the Government now demonstrates its commitment to stamping out non-compliance and malpractice in our industry – more resources and investment are needed if we are to clean up an industry that continues to attract negative headlines.
“All told, the Off-payroll legislation and CEST have caused mayhem for the contracting workforce and hirers who have all been unfairly penalised as a result. HMRC needs to hold up its hands and admit that CEST is flawed, has been an abject failure, and must be ditched.”
A government spokesman said: “With or without the reforms, the underlying rules on off-payroll working are unchanged – anyone working like an employee should pay similar tax as someone who is directly employed.
“We stand by CEST’s results, provided accurate and correct information is used, in accordance with our guidance. The tool is rigorously tested against case law and settled cases by officials and external experts.”