England – 27/01/2012 – From the start IR35 legislation was damaging to labour market flexibility
When IR35 legislation was introduced to kerb the practice of disguised employment many people warned that it went too far. Critics of the legislation believed that it would damage the flexibility of the labour market. Their main criticism was that it made working for yourself as a service provider far more difficult. The legislation was effective at dealing with disguised employment tax avoidance, but also made many genuine contractors and freelancers look as if they were guilty of tax fraud.
It not only put people off from working as self-employed service providers it also led to many firms outsourcing work abroad. By employing people from other parts of the world as contractors UK firms could keep regular employees doing semi-regular or seasonal tasks for them on a regular basis without being accused of avoiding PAYE. If they did the same with a self-employed UK provider, they ran the risk of being hauled over the coals by the taxman.
Luckily, the coalition government understands the harm that IR35 has done, and still is doing, to the UK employment market. As a result, they vowed to do something about it. However, to date they have not really done so. The legislation was to be scrapped in 2010, but has been kept as is for the 2011 tax year. However, they have set up an IR35 forum.
The IR35 Forum Struggle
There is little doubt now that the way in which IR35 legislation is applied and administered will change considerably, but there is a huge amount of work to do. In fact, so much work that the fifth IR35 forum had to be cancelled because the work from the 4th forum could not be completed on time. Because of these delays, what the changes are and how they will affect the UK labour market remains unclear.
IR35 specialists, like the 24 strong team at Beevers and Struthers, are watching progress with interest. They have been providing accountancy services to the self-employed, in the UK, for over 100 years, so have seen many changes in legislation, but not many as significant as this change will be.
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