The House of Lords Bill Sub-Committee has opened a follow-up inquiry into the “performance” of tax regulation IR35 following the news of another review into public sector reform. Could the latest inquiry prove counterproductive to HMRC’s mission to recoup “lost” tax revenue? And highlight vacancy issues for skilled roles?
A recent IR35 tribunal case involving former Sky TV presenter Dave Clark is another example of how the Treasury is losing out on higher income tax generation by pushing highly-skilled self-employed workers into salaried employment or PAYE unregulated umbrella contractors, according to IR35 specialists.
News has emerged that Clark has failed to appeal his IR35 case for work carried out for Sky TV by his company Little Piece of Paradise Ltd. The IR35 decision, for Little Piece of Paradise Limited (“LPPL”), heard at the tax tribunal just over a year ago on 20th October 2020, has finally been released, with Judge Heidi Poon dismissing the appeal in principle. The decision relates to services provided by Dave Clark between the five tax years spanning 2013 to 2018.
The tribunal found personal service was required and that there was mutuality of obligation and control to a sufficient degree for the engagement to be a contract of service.
The sports presenter who is seriously ill with Parkinson’s disease, according to the Sunday Times, was given a £281,000 bill after becoming the latest victim of a tax clampdown. Clark retired in July last year.
Commenting, Dave Chaplin, CEO of compliance solution IR35 Shield who attended the hearing and who has spoken to Dave Clark said, “Many of these media presenters’ contracts appear to be boilerplate, with additional arrangements having been agreed verbally. That can present a considerable challenge many years later in attempting to argue a case – memory fades faster than ink.”
Chaplin points out that had Clark’s arrangements fallen under the new IR35 rules, and not the old ones, it would be the broadcaster picking up the tax bill, and not him.
“Whilst the quantum here is quite large, as is usual in most cases, the final amount owed tends to be about a third of that figure, because his company would have already paid a considerable amount of tax, including VAT of around £56,000 – which is rarely mentioned in these cases.
“One final point of course, is that, had Mr Clark been a full-time employee of Sky, the likelihood is that he would have been paid considerably less as salary, and therefore not have generated as much tax as he did under the arrangement.”
Dave Chaplin, IR35 Shield
What could the Lords IR35 follow-up unearth?
The Lords IR35 inquiry will act as a ‘follow-up’ to the Sub-Committee’s report published in April 2020, titled ‘Off-payroll working: treating people fairly’.
“This reviewed and ultimately criticised the government’s decision to enforce IR35 reform which has since seen medium and large businesses become responsible for determining the IR35 status of contractors,” according to IR35 insurance specialist Qdos Contractor.
Many Freelance Informer readers may already be aware that the UK government’s tax reform, IR35, has driven thousands of contactors across various business sectors out of self-employment, as previously reported.
The figures point to a major shift in one’s ability to become or remain self-employed in the UK. IPSE found that over a third of contractors (35%) have left self-employment since the changes to IR35, either moving into permanent employment, retiring, working overseas or simply not working. All these alternatives mean less tax revenue for the UK economy.
The findings also noted that of those who remain, more than a third again (34%) are now working through unregulated umbrella companies and another third (36%) are working through engagements deemed ‘inside IR35’, many with dubious unpaid working conditions (e.g. mandatory training without pay and no employment rights) and a drop in salary up to 40%. Again, fewer tax revenues.
IR35: is the legislation hurting essential roles getting filled?
Like the initial inquiry, the follow-up looks to be fairly comprehensive. It calls for responses from impacted parties with regards to the overall success of the reform, the effectiveness of HMRC’s Check Employment Status for Tax (CEST) tool along with how well the tax authority has supported contractors and businesses throughout.
It also asks if IR35 reform has contributed to existing job vacancies in the UK.
According to Qdos, this could be seen as a nod towards the HGV drivers crisis, which has been brought on by IR35 reform, along with the pandemic and Brexit.
CEO, Seb Maley, shared his view on this:
“The first Lords review was damning and exposed many of the mistakes the government has made with regards to IR35 reform in the public sector back in 2017 – from highlighting CEST’s fundamental failings to addressing the issue of zero rights employment. But ultimately, it was largely ignored by policymakers, who pushed on and introduced similar changes in the private sector earlier this year.
“I’ve no doubt that the Lords will conduct another thorough, fair and brutally honest assessment of reform, but it remains to be seen if it will result in the changes that many contractors want, which is the reversal of reform in the private sector.”
City Contractors on standby
The professional services sector is also desperate for highly skilled and experienced talent. Professional services firms in the UK have warned of growing “white-collar” labour shortages as businesses fight it out for top talent amid the economic recovery from the coronavirus crisis, the Financial Times reported.
Some City of London firms have even started to turn away work due to a lack of staff, according to business leaders.
But it would seem that there is little talk of calling in contractors, consultants or self-employed professionals in the financial and professional services sectors, and that is very likely because of IR35 and the blanket contractor bans placed within the banking and financial services sectors, as previously reported by The Freelance Informer.
Four in ten businesses impacted by recent changes to IR35 in the private sector have admitted they would approach the changes differently if given the opportunity. This is according to a study carried out by Qdos, in which 59 businesses affected by the reform shared their experiences.
The House of Lords Bill Sub-Committee IR35 inquiry is open for submissions until 15th November 2021, with the Lords Finance Bill Sub-Committee inviting stakeholders to share their view.
