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IR35 – Pressure mounts on Government to issue employment rights for contractors inside IR35

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by Contractor Weekly

The growing threat of working inside IR35 is the number one concern for contractors, and yet calls for the Government to introduce employment rights for individuals who are ‘employed for tax purposes’ continue to go unheard.

Recently, 89% of independent workers who responded to a survey run by Qdos Contractor revealed they want employment rights when working inside IR35, and are made to pay similar taxes to employees. This demand is also supported by further research carried out by a number of other IR35 specialists, who are also lobbying for change irrespective of HMRC’s plans around private sector reform.

Statistics also point to a growing trend among contractors – 38% of whom have been subject to blanket-inside IR35 decisions in the public sector – toward driving themselves too hard and not taking time off as they deal with the growing financial difficulties of working self-employed.

Undoubtedly, the pre-existing economic pressures of independent working have been made significantly more challenging by recent tax and IR35 reform. In short, this results in contractors working when unwell, on public holidays and not – in their opinion – taking enough leave.

The Qdos Contractor survey shows that as many as 86% of contractors have worked when unwell, with 57% of those always or usually working when not feeling up to the task, simply because they cannot afford not to work.

You might shrug and conclude this is just a reality of self-employed life, and lack of security – which 47% cite as the biggest challenge of independent working – is unavoidable. Or you might think – considering an additional 90,000 or so contractors find themselves inside IR35 following last year’s changes – it’s time to change the model and the Government needs to align employment status with IR35 status.

It can’t be a good state of affairs if nearly a third of contractors tend not to take holiday to keep their head above water. If these individuals were handed employment rights when made to work inside IR35 and burdened by the extra costs, IR35 experts believe it would make a major difference to the wellbeing of the individuals that millions of public and private organisations now depend on for vital skills and expertise.

This is not a small problem either. The significant rise in the number of contractors wrongly placed inside IR35 as a result of last year’s reform means the need to address the disparity between employment rights and tax status is paramount. This isn’t just about fairness either, it’s about making contracting a less stressful, more positive choice for well qualified people and increasing the flexibility and productivity of the entire UK workforce.

How much longer can the Government ignore this issue? Clearly, it’s something that needs to be addressed regardless of HMRC’s stance on private sector IR35 reform. The Treasury often highlights the need for a fairer tax system, but continues to bury its head in the sand when it comes to the debate around employment rights for those inside IR35.

There has been no let-up in HMRC’s aggressive stance to independent workers, and those operating inside IR35 do not get much, if anything in return, for paying more in tax. Even the 5% expenses rule – an allowance for those who continue to operate through their limited company when inside IR35 – has been scrapped in the public sector. Should private sector reform arrive, do not be surprised if it vanishes completely.

It’s easy to see why contractors working full-time on a project, and inside IR35, are desperate to land a contract that isn’t caught by the legislation. Individuals subject to IR35 can take home anything up to 30% less than they would when working outside the legislation. And still, those under IR35 receive no employment benefits.

This illogical, short-sighted approach to the IR35 legislation contradicts the Government’s countless promises to help the self-employed workforce thrive. This has not gone unnoticed either – 91% of contractors believe The Conservative’s attitude towards the independent workforce poses a threat to this way of working, and it’s hard to disagree.

Contractors may well find lack of security a challenge, but that isn’t to say they want extra protection or employment rights when working outside IR35. When left to it and able to work independently, these workers aren’t vulnerable – they’re ambitious and entrepreneurial individuals who, judging by the rapid growth of contracting in recent years, have thrived in what has become an increasingly challenging environment and continue to contribute directly and indirectly to the UK economy.

The writing’s on the wall. It’s time the Government re-assessed the situation.