The beginning of the end for IR35?

The recent IR35 employment tribunal confirmed what opponents of IR35 have vigorously maintained for the past few years: that a...

The recent IR35 employment tribunal confirmed what opponents of IR35 have vigorously maintained for the past few years: that a contractor is not an employee of the client.

The whole IR35 affair has always struck me as a piece of nonsense that would have done justice to Swift, Lear or Lewis Carroll. I have yet to meet anyone who can sustain a credible argument for the formulation of this invidious piece of legislation. It has been framed in complete isolation from the reality of the IT contract business model.

For those of us old enough to remember the popular television programme On the Buses, Blakey the bus inspector had a distinctive catchphrase: "You've made my day, you have!". That's exactly how I felt when I saw the news of the case ruling.

At last, an outbreak of common sense!

This week's ruling is a definite sign that IR35 will fail because, when push comes to shove, this new tax law is a threat to both clients and contractors alike. Quite simply, IR35 is an unnecessary interference in a mature market. It brings no benefits to anybody, apart from the Inland Revenue, and they clearly don't understand how our business model operates.

If a contractor who has worked exclusively for a client - in this case Hewlett-Packard - for six years is not a "disguised employee", according to the tribunal ruling, then how can the distinction be applied within the terms of IR35 to those of us who spend a few weeks or months on an assignment?

I have heard some say that IR35 is a neutral measure that will eventually be absorbed by the industry, with contractors passing on the higher operating costs to their clients through increased day-rates. If true, I can think of nothing more counter-productive to a healthy and competitive industry in the UK. The software business moguls of Bangalore and Prague must be rubbing their hands with glee at the prospect of even more projects coming their way.

More worryingly, perhaps, has been the recent media reporting of IR35 as "a measure to ensure that contractors pay a fair amount of tax". Such a description does not accurately reflect the nature of the legislation, and I would advise such writers to appraise themselves of the full consequences of "deemed salary" to an IR35 susceptible business.

After all, if IR35 was such a "fair" measure then an august body like the employment tribunal would not be blasting it wide open and calling into question the very essence of the law. What's more, the tribunal is now adding further weight to the practical concerns raised during the judicial review of IR35. Obviously, as they say in Yorkshire, it's a "bad un" through and through.

Can anyone please tell me, what value does a tax law have if it does not have the support of the employment tribunal and the courts? New Labour has made much play of the term "joined-up" government, but there is little evidence of it in the IR35 arena. Previous governments have learned to their cost that unpopular revenue-raising initiatives depend on effective enforcement for their viability.

I suspect, however, that less than 18 months into IR35, the government is already considering damage limitation rather than further justification. IR35 was fundamentally flawed at conception, misrepresented to achieve political sponsorship, manipulated through parliament via the Pensions Act back door and is now proving unsustainable in practice. Well thought-out then? I couldn't possibly comment.

Of course, there always was an easier way than IR35 to address the perceived problem of contractors paying "too little" tax. The easy way was simply to make share dividend payments for employees subject to National Insurance. Fair, easy and equitable. Not too much to ask for, was it?

Is IR35 doomed?
Are you a contractor who feels ripped of by IR35? Are you an employee or employer who feels contractors are just whingeing money-grabbers? Let us know your views.

Colin Beveridge is a leading interim IT director and a long-standing critic of IR35.

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