IR35 flaw serves as ‘suppression of the self-employed workforce’

The chief executive of IR35 Shield has accused off-payroll legislation of suppressing the self-employed workforce, when it should be “unleashed, to get the UK economy growing and thriving again”.

The UK government concludes a consultation today which will allow HM Revenue and Customs (HMRC) to address taxes already paid.

This is to tackle contractors being overtaxed because of an error taking place when applying off-payroll working rules.

The webpage for the HMRC consultations explained: “HMRC has been looking at how it can address the immediate issue of over-collection by working within its existing powers and laws, whilst exploring whether changes should be made to the legislation.”

Commenting on the double taxation flaw, Dave Chaplin, chief executive of IR35 compliance firm IR35 Shield said: “The double-taxation flaw has been massively unfair on businesses which were facing tax bills four times more than the perceived underpayment of tax.

“The fix should mean that the offset will be retrospective to April 2017, so any tax bills settled after April 2024 will ensure the correct and fair amount of tax is paid by the hirer, rather than the four-fold inflated bills they get due to the current flaw.”

Suppressing the self-employed workforce

In January this year, IR35 specialists Qdos reported that off-payroll tax legislation was the biggest concern of 2023 for contractors, despite the rising cost of fuel bills.

The most recent research carried out by the firm in April highlighted that this is still the case.

Mr Chaplin says: “Due to the flaw, many contractors who should have had their right to stay being their own boss, had that right taken away from them, due to firms refusing to engage at all with contractors.

“The legislative oversight has resulted in suppression of the self-employed workforce at a time when it needs to be unleashed, to get the UK economy growing and thriving again.”

‘This must also be resolved’

Off-payroll legislation was reformed in the private sector in April 2021 and makes all medium to large-scale businesses responsible for determining the IR35 status of contractors they hire.

In last year’s Mini-Budget, it was announced that the off-payroll working rules would be repealed effective from the 2023/24 tax year, before Chancellor Jeremy Hunt reversed this decision.

© Jordan Pettitt/PA Wire

In addition to self-employed workers being overtaxed, the IR35 Shield boss says that money is being left on the table when it comes to the public sector.

Mr Chaplin adds: “The legislation was enacted without properly addressing tax offsets, which has resulted in opening up a £300m tax loophole in the Treasury coffers.

“HMRC has disagreed with £300m of ‘Outside IR35’ determinations in the public sector, which means those contractors can fully reclaim all their tax and pay nothing.

“Until the fix is made, each time HMRC enforces the rules in the public sector, they lose money. This must also be resolved.”

Overall Mr Chaplin believes that “the fix in the flaw of this legislation will happen in the next Finance bill 2024.”

He adds that it’s “about time too.”