Contractors could go to tribunal over IR35

If employers deny contractors full employment rights, but still decide to tax them as employees, they could have a legal argument at an employment tribunal

The IR35 rules will effectively bring the majority of contractors working through a personal service company (PSC) into income tax and national insurance contributions (NICs) for the first time from 6 April 2020.

There has been strong opposition to the measures with calls for delays and demonstrations outside parliament.

Andrew Willis, head of legal at Croner told Accountancy Daily: ‘If the employer deems the contractor an employee or a worker for tax purposes, rather than self employed, then there is a chance they would also be an employee/worker for employment rights purposes which means they are entitled to national minimum wage (NMW)/holiday pay so the contractor would take them to employment tribunal to run that argument.’

A survey of over 12,000 contractors by ContractorCalculator found that almost two thirds (58%) of contractors are willing to take clients to employment tribunal over incorrect treatment under the new IR35 rules for the private sector.

‘Contractors are willing to take employers to tribunal because the off-payroll rules render contractors employed for tax purposes’, a spokesperson from ContractorCalculator told Accountancy Daily.

‘While many have pointed out that employment status should be aligned with regards to tax and employment rights, government has simply responded by stating that employment rights are outside the scope of off-payroll. Hence why so many contractors who responded will be pursuing their rights.’

The survey also shows that one in five (23%) plan to quit their jobs, 21% will change career and three quarters of workers inside IR35 want maternity/paternity pay, 92% want sick pay, 82% want disciplinary/grievance and 81% want access to income support.

A key criticism of the off-payroll legislation is that its compliance requirements are too complex. Uncertainty about the tax risk imposed on clients and agencies has led to blanket bans of PSC contractors across the financial services sector.

Around 37% of companies have yet to assess their workers and, contrary to Treasury claims, only 31% are doing so on a case-by-case basis.

Nearly half of contractors said they had left their last client due to IR35, 42% of companies have banned PSC contractors and only 12% have conducted assessments. 

Employee assessments were introduced under Finance Bill 2020 requiring employers to provide an IR35 status determination statement on a contractor’s IR35 status before a contract begins.

It declares a contractor’s deemed employment status and provides reasons for reaching this conclusion.

There has also been criticism of HMRC’s online tool, the Check Employment Status for Tax (CEST) as it does not appear to meet the legislative requirement for reasonable care, required by engagers at medium and large size businesses affected by the rules. 

The survey suggested that just 2% of contractors consider that HMRC’s CEST tool reflects the law, with 79% of contractors saying they do not trust HMRC to stand by the results it produces.

Dave Chaplin, CEO of ContractorCalculator said: ‘The findings provide proof from 12,000 affected contractors that this policy needs to be cancelled.

‘The government cannot ignore this evidence and must delay and rethink.

‘A simple off-payroll tax of about 5% across the board would remove the need for the complex employment status test which is wreaking havoc – and 79% of contractors agree with that simple idea.’

The off-payroll working rules will be enacted in Finance Bill 2020 due to be given Royal Assent by 6 April.

Further reading:

Chancellor promises lenient penalties for IR35

Off-payroll working rules: is your company or LLP affected – part 1

300+ protest IR35 outside parliament

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