The government needs to accept the “obvious reality” that IR35 legislation is “fundamentally flawed” in its aim of stopping the promotion and misselling of disguised remuneration schemes, according to MPs.
In a report published today (April 8) the All-Party Parliamentary Loan Charge Group said it understood and supported the aim of stopping employees from seeking tax advantages for falsely claiming to be self-employed.
But according to the APPG the IR35 rules had not achieved their aim, but had "ironically muddied the waters and unintentionally made it harder, not easier, to define contracting and freelancing".
IR35 rules ensure a worker, who would have been an employee if they were providing their services directly to the client, pays broadly the same income tax and national insurance contributions as employees.
Disguised remuneration schemes, meanwhile, are arrangements that pay loans instead of ordinary income to avoid income tax and national insurance contributions.
Since April 6, all public sector clients and medium or large-sized private sector clients have been responsible for deciding their worker’s employment status.
If the off-payroll working rules (IR35) apply, a worker’s fees will be subject to income tax and national insurance contributions.
Dave Chaplin, chief executive of ContractorCalculator and IR35 Shield, said: “Contractors who now find themselves ‘inside IR35’ are in an untenable position – they are working PAYE but have none of the rights that come with permanent employment.
“Zero rights employment is simply wrong. It’s time to finally overhaul the discredited IR35 legislation, which everyone knows doesn’t work and come up with a way to properly recognise contracting and freelancing in the tax system and ensure people are either classed as self-employed or as employees with full rights and benefits.”
In its report the APPG recommended an alignment of tax and employment law, a lack of which had led to the promotion, operation and use of disguised remuneration schemes, it said.
It also called on the government to accept it was unfair for workers who were taxed as employees to be “denied” the rights and benefits of an employee, or recognition in employment law.
The report continued: “We believe that all ‘inside IR35’ workers should get full rights under all legislation dealing with agency workers, with a clear and transparent right to holiday and sick pay.”
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