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Campaign Launched Against UK IR35 Changes

by Jason Gorringe, Tax-News.com, London

30 March 2016


The Association of Professional Staffing Companies (APSCo) has launched a lobbying campaign against proposed changes to the UK's IR35 legislation.

The Government this month confirmed that legislation will be introduced in Finance Bill 2016 to implement previously announced reforms to the employment intermediaries legislation (known as IR35). IR35 is the income tax and National Insurance contributions (NICs) legislation that may apply if someone is working for an organization through an intermediary, typically a Personal Service Company. If IR35 applies, all payments to an intermediary are treated as if they were the worker's employment income and the intermediary must pay any tax and NICs due.

Finance Bill 2016 will restrict tax relief for home-to-work travel and subsistence expenses for workers engaged through an employment intermediary. The aim is to bring the rules into line with those that apply to employees.

According to APSCo, the proposed reforms are unworkable, disproportionate, and unreasonable. APSCo explained that under the current legislation, responsibility and liability for determining whether an assignment falls within the scope of IR35 lies with the individual worker. Under the changes, recruitment firms will be responsible for determining the status of an assignment in the case of any workers they supply to the public sector, and will also be liable for unpaid taxes.

Samantha Hurley, Head of External Relations at APSCo, commented: "One of the historical issues with IR35 legislation is that there is no statutory test to establish employment for tax purposes, and so determination is made based on a number of factors. HMRC says it will introduce a simple test to help engagers decide whether or not IR35 applies. Given the large body of case law relating to this question, if there were a simple answer, I think the courts would have found it."

"As it is, if HMRC is intending on producing an over-simplified test in line with the 'supervision direction or control test' which HMRC has introduced for other intermediary tax legislation, we are extremely skeptical that it will be appropriate. Recruitment firms would not typically be present at the client's site and therefore have no visibility of the role undertaken or how the services are performed. Consequently, in order for a recruitment firm to apply HMRC's proposed test, it would need to obtain the required information from both end client and worker."

Hurley added that the proposal may be open to legal challenge. She pointed out that, under Article 1, Protocol 1 of the European Convention on Human Rights, all tax systems have to be proportionate, reasonable, public, and predictable. "The proposals are therefore unjust as recruitment firms could be bearing penalties attributable to other people's conduct over which they have no control," she said.

"Obviously we are not against the correct payment of taxes and, clearly, individuals running Personal Services Companies (PSCs) should be operating IR35 where appropriate and paying the right amount of tax. However, it should not be the job of the recruitment firm to determine that individual's status when the public sector employer itself has ready and immediate access to the necessary information. The Government is effectively treating recruitment firms as its pay-rolling service, whilst ensuring that the public sector users have no similar burdensome responsibilities or liabilities," Hurley concluded.

TAGS: individuals | tax | public sector | law | employees | budget | United Kingdom | tax authority | legislation | HM Revenue and Customs (HMRC) | penalties | HM Revenue and Customs (HMRC) | services | Recruitment

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