Note that the liability is shifting back to contractors.
I don’t consider this a win for the contractor. The end client should be the one to determine status and shoulder the responsibility if it turns out to be incorrect.
I don’t consider this a win for the contractor. The end client should be the one to determine status and shoulder the responsibility if it turns out to be incorrect.
I'd say the opposite, the incentives / risk structure are otherwise completely misaligned. If the end client says you're outside IR35 and you should be in, they get whacked for income tax + 2x national insurance (employer and employee contributions). If they say you're inside and you should be outside they only have to pay the employer NI contributions.
That's a recipe for blanket "inside IR35" decisions, which is exactly what happened to the detriment of many genuinely independent contractors.
The upside of this liability shift is that your customers will be more willing to negotiate with you. Right now some of them are assuming very defensive positions, like treating all contractors as being inside IRS35, because claiming that you're outside is a risk for them.
Of course they aren't supposed to do that and they are supposed to assess each contract individually and there are supposed to be appeals processes if the IR35 status is then determined incorrectly. However we live in the real world and what is "supposed to" happen means very little.
The market for contractors today is a fraction of the size it used to be before the new rules came in. Typical rates in many parts of the market actually fell since the changes when logically several factors should have been pushing them up if the market was functioning properly. No doubt some part of that was getting rid of disguised employees because those people do exist. However the effect has been far too widespread and affected far too many genuinely independent workers and their clients as well.
That part was completely botched. The HMRC themselves admitted that role based assessments are permitted. Also they have deceived the public what assessment actually means. If the client writes the contract in a way that puts service provider in-scope (to minimise the risk), then there is not much that can be done. The appeal is basically requesting the client to change the contract, which for obvious reasons they won't do, because that would put them at risk. So the client can always walk away when you appeal. From the IR35 perspective, the individual situation of the contractor does not matter.
Tax avoidance is a problem but maybe it's better to skim off a little bit from many people than take a lot from a very few people while scaring the rest away?
It gives the larger entity in b2b relationship an effective say how the smaller partner is being taxed. This gives them literally an instrument to wipe their competition. For instance, a big haulage company can't find drivers to do a certain route, but there is a small company in the area happy to subcontract. Big company can now say, alright guys, I can only give you the contract in-scope of IR35. If every big company in the area does that (and they do), then suddenly that small business can no longer operate. Company folds and its workers can either seek employment in the big company or do something else.
These IR35 changes were really poorly written with only the happy path in mind.
If the same party that stands to lose money if they get involved is the one deciding whether to get involved or not, surely that's a conflict of interest and makes the policy pointless?
Sure, I guess you could litigate against the insurer (and still litigate against HMRC), but the whole point of this insurance is to protect against legal costs - if you're going to spend money anyway, what's the point of insurance?
If you're a permalancer, coining a freelance rate whilst paying very little tax (no PAYE), then you _should_ be caught out. You _should_ have the liability.
If you operate a business that provides software development services and want to help a client with their existing software project (who already has full-time employees working on it) you will often need to become embedded within their team which includes participating in regular meetings (including daily standups) and do "employee-ish" things that look risky from an IR35 point of view. Just speccing out a clear scope of work in advance is very difficult as sometimes the scope will vary over time as edge-cases are discovered during development, so the SOW will end up very broad and may look employee-ish. Your best bet is to have mitigating factors such as working for multiple clients, using your own equipment, etc and possibly contract length (I am not sure if it counts, IMO it definitely should) but none of those are bulletproof either.
Contributing to an existing codebase in parallel with a client's in-house development team is risky from an IR35 point of view even if you are doing so in good faith and want to operate a business rather than just be a "permalancer". That's also why with the new rules (that are now being repealed), a lot of companies did a blanket determination of putting everyone "Inside" IR35 because the rules are not only unclear to begin with, but even more difficult to correctly interpret and apply in certain industries.
Personally I'd get very nervous about the kind of contracting where you're expected to integrate with a client's Agile processes that have things like daily meetings and breaking tasks down to very small chunks where sometimes you get them and sometimes a permanent employee does and sometimes they move between you. That starts to look too much like a grey area even if everything else is set up like an independent business.
Maybe there should be some alternative status to support flexible temporary employees that reflects their closer involvement with a client/employer while they're working there but also makes allowances for the added risks and limited employee protections and the extra downtime they will probably have between gigs. It's obviously useful to have this kind of flexible labour force but it doesn't really make much sense to treat it the same as either running a truly independent business like a freelancer or being a full employee with the security and benefits that brings.
Edit: I'm thinking of a model where the rates and allowances work out the same as full-time permanent employment if you do end up working consistently but maybe the important figures get calculated over a whole tax year or can even be carried over across years to compensate for the unpredictability. Then you can probably let the market decide the rest of the pricing in terms of how much extra that flexibility is worth to clients and how much compensation is needed for the added risk to attract enough flexible workers.
The big consultancy gets paid an invoice, they pay their employee some salary and keep the profit. If one man band business does the same thing, there is all sort of fuss about being a disguised employee and if the IR35 is applied, then they get taxed on the entire invoice.
To bring level playing field, these big consultancies should also be taxed on the invoice paid by the client, without being able to keep profit. If their workers were assessed for IR35, they would all be caught by it.
It's such a nonsense.
Honestly, I don’t get this mindset.
When you see someone doing better than you, why is your first thought “I must put him down” instead of “I want to learn this too”.
The problem with IR35 has never been the principle that disguised employees should not escape the normal employee tax rules. It's always been that there were also significant numbers of other people affected who really were working more independently and acting like any other real business, which just happened to be owner-operated in their case. Even if they're doing nothing wrong all of these people now have this IR35-shaped sword hanging over every contract they take and so do their clients.
If nothing else it creates extra admin and more legal and insurance costs for those involved. I've known promising contracts to get sunk at the last minute because one side or the other was concerned about some of the details looking a bit too close to being caught by IR35 and because naturally these tend to be relatively short jobs it's not always worth engaging serious lawyers to resolve things. Basically it means everyone loses and all because the tax rules were ambiguous and created more risk than the contract was worth to either or both parties.
Sick days, no pay. Holidays, no pay. Economic downturn? You will be the first out the door. Contract not renewed? Tough, don't expect any 'severence'. Company makes a huge profit? No bonus for you. Forget billing for company parties/outings, etc. Training? lololol, up to you. Plus, you pay your own pension, social security taxes, etc.
This is absolutely a win for the contractor.