Criticism
IR35 has been strongly criticised by several bodies, including the Professional Contractors Group a professional association supporting freelancers, contractors and consultants, by former Ernst & Young tax partner Anne Redston, and by other accountancy bodies, employment agencies, and taxation experts. Some of the key criticisms levelled at the measure include:
- IR35 does not achieve its stated aim of taxing those within IR35 at the same level as employees since those within IR35 also pay Employers NI in addition to Employees NI. This results in much higher levels of tax being paid by those within IR35.
- Its complexity and its harmful impact on many small companies which exist for reasons other than tax avoidance or evasion. These include many companies owned by IT professionals, who often have many short-term contracts rather than one steady employment.
- That its effects extend far beyond the Friday to Monday scenario envisaged in the original press release, which indeed has never been discussed much since.
- That it is unclear whether IR35 applies to an individual contract or not, and the Revenue will not give an opinion until the contract has been signed. As their ruling can imply significant extra taxation, this means that payment negotiations have to be made in ignorance of the taxation costs involved.
- That it is unjust that workers in small family businesses should be taxed as if they were employed by their clients, yet not receive any of the legal, state and other benefits received by "normal" employees.
- There is little evidence that it raises any significant amount of money.
- It renders small businesses uncompetitive with large consultancies and encourages off-shoring.
- The calculation of a "deemed payment" under the legislation is very complex, if you consider yourself caught. The calculation involves 11 separate stages, some of which are recursively dependent on others.
- The introduction of IR35 combined with its complexity and ambiguity, led many freelancers into a number of Tax Planning schemes that led to a further loss of revenue to HMRC.
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