[UK] Lords swayed by contractors’ poignant IR35 testimony

Some good news at last for contractors. In a report released on Tuesday, the House of Lords Economic Affairs Finance Bill Sub-Committee said the government needs to address the "problems, unfairnesses, and unintended consequences," of the IR35 tax legislation, eFinancialCareers reports on its contents and reception.

At present IR35 is due to be implemented in April 2021. The Sub-Committee’s report suggests written evidence submitted by individuals directly impacted by IR35 may have contributed to the Lords' conclusions. (Link via original reporting)

The individuals' evidence - compiled in a separate document - highlights how painful contractors in the UK have found the years running up to IR35. Finance contractors are not solely affected, but with IR35 prompting banks and finance firms to lead the move towards blanket bans on all contractors, they have been at the sharp end of the changes. As their testimonials demonstrate. (Link via original reporting)

One of the most poignant submissions reportedly comes from an anonymous contractor who says he has worked in banking and finance for two decades. He now faces the prospect of a forced sale of his home because of IR35. "My options are to leave or operate via an umbrella company or on a PAYE basis. The latter two options will reduce my income by 25-30 per cent," the contractor’s testimonial says, adding, "The stress that this has caused to my family is considerable. Everything we have worked for, the home we have tried to make for our son, the friends we have made and the links to our community will all be gone in a matter of months."

Many of the Lords' submissions pointed out the damage the legislation is doing both to banks and staff. "The finance industry is going to underperform this year," one finance contractor said. "Teams are not being decimated, they are just ceasing to exist. Entire project teams are just quitting, others are only losing 50 per cent of their people."

Contractors said hundreds of banking projects are being mothballed because it takes three to six months to bring new staff up to speed. "Regulatory projects essential to protect consumers and the quality of the UK banking system. Everything just shutting down. My own team has gone from having a full book of work, to “keeping the lights on” to deciding which projects to shut down," the same contractor explained.

Others pointed out that the British government stands to reduce its tax-take as a result of the legislation. Contractors will either receive dramatically reduced pay as full-time employees or lose work as banks simply offshore work that was previously undertaken by contractors in the UK to avoid IR35 complexities. Several contractors reported hesitancy about going on the payroll, not only due to pay cuts but because they fear being unfairly stung by large retrospective tax bills. (Link via original reporting)

The testimonials overwhelmingly reflect the sense of injustice both at IR35 legislation and at the government's recent suggestion that contractors should be taxed on a similar basis to employees. Despite not benefitting from advantages like paid holidays and sick pay. 

"I offer a significantly different proposition to that of an employee," one contractor who had been freelancing in banking and financial services since 2005, said. "I am subject to far less supervision. The client does not have to be concerned about my career progression, to train me, or to carry out appraisals. Neither am I entitled to sick pay or holiday pay. If I am productive, then the contract runs its course and is sometimes extended. If the client isn’t satisfied with my work, or if they simply need to downsize, then the contract can be terminated with a month’s notice. There is no redundancy process to worry about."

This works for banks, he continued, "Many engagers have for a flexible workforce, and allows them to expand their resources in the knowledge that they can easily scale them down again to adapt to prevailing business conditions."

The rules might now be further delayed. The Lords have this week requested that the government announce by October 2020 whether it plans to implement IR35 by April 2021 or to further delay.  

“We must now keep pushing for changes to outlaw the disgrace of ‘zero rights employment’ and to make it illegal for firms to push employer’s taxation onto contractors," says Dave Chaplin, CEO of ContractorCalculator. 

"The idea of operating inside IR35 where contractors are taxed like an employee but do not receive any employment rights unappealing and, more to the point, unfair. Following the House of Lords report, the Government must address IR35’s flaws and work quickly to align tax status with employment rights,” says Seb Maley at Qdos, a site that offers insurance to contractors in the UK.

A number of finance contractors informed the Lords they were currently out of work, losing their jobs earlier this year before IR35 was due to be implemented in April and just as the pandemic took hold. Parvyez Salam - a contractor recruiter in London - reportedly said there are very few jobs around at the moment. "However we are anticipating an increase in contractor demand as soon as the City gets back to some sort of normality," he added. 

One veteran contractor believes this could be wishful thinking. "Repealing/changing IR35 would take Parliamentary effort." In the wake of coronavirus, it seems more likely that businesses will simply, " retreat to a smaller permanent cadre of core employees," he said.

Some good news at last for contractors. In a report released on Tuesday, the House of Lords Economic Affairs Finance Bill Sub-Committee said the government needs to address the "problems, unfairnesses, and unintended consequences," of the IR35 tax legislation, eFinancialCareers reports on its contents and reception.

At present IR35 is due to be implemented in April 2021. The Sub-Committee’s report suggests written evidence submitted by individuals directly impacted by IR35 may have contributed to the Lords' conclusions. (Link via original reporting)

The individuals' evidence - compiled in a separate document - highlights how painful contractors in the UK have found the years running up to IR35. Finance contractors are not solely affected, but with IR35 prompting banks and finance firms to lead the move towards blanket bans on all contractors, they have been at the sharp end of the changes. As their testimonials demonstrate. (Link via original reporting)

One of the most poignant submissions reportedly comes from an anonymous contractor who says he has worked in banking and finance for two decades. He now faces the prospect of a forced sale of his home because of IR35. "My options are to leave or operate via an umbrella company or on a PAYE basis. The latter two options will reduce my income by 25-30 per cent," the contractor’s testimonial says, adding, "The stress that this has caused to my family is considerable. Everything we have worked for, the home we have tried to make for our son, the friends we have made and the links to our community will all be gone in a matter of months."

Many of the Lords' submissions pointed out the damage the legislation is doing both to banks and staff. "The finance industry is going to underperform this year," one finance contractor said. "Teams are not being decimated, they are just ceasing to exist. Entire project teams are just quitting, others are only losing 50 per cent of their people."

Contractors said hundreds of banking projects are being mothballed because it takes three to six months to bring new staff up to speed. "Regulatory projects essential to protect consumers and the quality of the UK banking system. Everything just shutting down. My own team has gone from having a full book of work, to “keeping the lights on” to deciding which projects to shut down," the same contractor explained.

Others pointed out that the British government stands to reduce its tax-take as a result of the legislation. Contractors will either receive dramatically reduced pay as full-time employees or lose work as banks simply offshore work that was previously undertaken by contractors in the UK to avoid IR35 complexities. Several contractors reported hesitancy about going on the payroll, not only due to pay cuts but because they fear being unfairly stung by large retrospective tax bills. (Link via original reporting)

The testimonials overwhelmingly reflect the sense of injustice both at IR35 legislation and at the government's recent suggestion that contractors should be taxed on a similar basis to employees. Despite not benefitting from advantages like paid holidays and sick pay. 

"I offer a significantly different proposition to that of an employee," one contractor who had been freelancing in banking and financial services since 2005, said. "I am subject to far less supervision. The client does not have to be concerned about my career progression, to train me, or to carry out appraisals. Neither am I entitled to sick pay or holiday pay. If I am productive, then the contract runs its course and is sometimes extended. If the client isn’t satisfied with my work, or if they simply need to downsize, then the contract can be terminated with a month’s notice. There is no redundancy process to worry about."

This works for banks, he continued, "Many engagers have for a flexible workforce, and allows them to expand their resources in the knowledge that they can easily scale them down again to adapt to prevailing business conditions."

The rules might now be further delayed. The Lords have this week requested that the government announce by October 2020 whether it plans to implement IR35 by April 2021 or to further delay.  

“We must now keep pushing for changes to outlaw the disgrace of ‘zero rights employment’ and to make it illegal for firms to push employer’s taxation onto contractors," says Dave Chaplin, CEO of ContractorCalculator. 

"The idea of operating inside IR35 where contractors are taxed like an employee but do not receive any employment rights unappealing and, more to the point, unfair. Following the House of Lords report, the Government must address IR35’s flaws and work quickly to align tax status with employment rights,” says Seb Maley at Qdos, a site that offers insurance to contractors in the UK.

A number of finance contractors informed the Lords they were currently out of work, losing their jobs earlier this year before IR35 was due to be implemented in April and just as the pandemic took hold. Parvyez Salam - a contractor recruiter in London - reportedly said there are very few jobs around at the moment. "However we are anticipating an increase in contractor demand as soon as the City gets back to some sort of normality," he added. 

One veteran contractor believes this could be wishful thinking. "Repealing/changing IR35 would take Parliamentary effort." In the wake of coronavirus, it seems more likely that businesses will simply, " retreat to a smaller permanent cadre of core employees," he said.