Skip to content

IR35: Contractors demand tax and employment law alignment to protect ‘zero-rights’ workers

Would you like to recommend this contribution? This can be done via:

Government is again facing calls to ensure contractors that pay the same amount of tax as permanent employees also receive the same workplace benefits
The government is again facing calls to amend its IR35 tax-avoidance legislation as concerns mount about its potential to be misused by employers to cuts costs by hiring contractors to effectively work as “zero-rights” employees.
Similar concerns were raised several months ago by a 200-strong group of MPs, and now tens of hundreds of contractors have also voiced similar worries in a poll conducted by IR35 compliance consultancy Qdos.

Two-thirds (65%) of the 1,846 contractors that took part in the poll said they are engaging with their clients on an inside-IR35 basis, which means they are considered to be an employee from a taxation perspective, based on the work they do and how it is performed.

This means they will be expected to be taxed in the same way as a permanent employee of the company, from an income tax and national insurance perspective, but they are not eligible to receive the same workplace benefits as an employee would.

Contracting market stakeholders have repeatedly argued that this could lead to employers using the IR35 legislation to build out a workforce that comprises contractors to whom they have no duty of care to provide workplace benefits.

This is particularly so given that the way the IR35 legislation works in the public and private sectors has been revised in April 2017 and April 2021, respectively, so that organisations are now responsible for determining whether the engagements they have with contractors should be classified as inside or outside IR35.

Before these changes were introduced, contractors were responsible for determining for themselves whether their working arrangements fell in or out of scope of the IR35 rules, raising concerns that employers may use their new powers to deliberately mis-classify their contractors as inside-IR35 to cut costs.

Because of the perceived risk of zero-rights employment, 82% of respondents to the Qdos poll said they are now calling on the government to tweak the IR35 legislation so that those determined by their clients to be working inside IR35 will receive the same workplace benefits as permanent employees.

“The government needs to put an end to zero-rights employment once and for all,” said Qdos CEO Seb Maley. “It was already an issue, but the introduction of IR35 reform has exacerbated the situation.

Read more about IR35 and employment rights

  • The government is facing calls from a 200-strong group of MPs to amend its 20-year-old IR35 tax-avoidance legislation over fears that its misuse is leaving growing numbers of contractors effectively working for companies as “zero-rights” employees.
  • Data published by HMRC confirms that the tax authority’s IR35 status checker tool has failed to determined how contractors should be taxed in hundreds of thousands of cases since November 2019.

“Thousands of contractors are now working as zero-rights employees – often as a result of needlessly risk-averse and sometimes non-compliant IR35 decisions carried out by businesses in response to the reform.

“Contractors working inside IR35 are effectively taxed as employees, but don’t receive any employment rights in return. It is illogical, unjust and must be eradicated.”

The 2017 gig economy review by Matthew Taylor, former interim director of labour market enforcement, raised this point and called on the government to take action to ensure the laws on tax and employment are aligned to ensure contractors that pay the same tax as employees receive the same workplace benefits.

Maley added: “The solution is to align employment rights with tax status, so that contractors taxed as employees get holiday pay, get paid sick leave, along with maternity and paternity privileges.

“The government promised to look into this some time ago, but it should have been done before the IR35 reform was enforced.

“It is astonishing that Westminster still has its head buried in the sand, showing how unsupportive it is of the independent workforce, which is arguably one of the UK’s most valuable economic assets.”

Also read:

Subpostmaster campaigning forces government to set up compensation scheme and make interim payments

Subpostmaster campaign group is a step closer to achieving what it was originally set up to do as government launches compensation scheme for its members who did not receive fair payouts

UK tech has 2.8% gender ‘wage gap’, says Hired

The wage offered to women for tech jobs in the UK is 2.8% less than offered to male counterparts – a larger gap than in the US and Canada, says Hired

Government won’t regulate on professional cyber standards

The government has elected not to proceed with regulatory intervention to embed standards and pathways across the cyber profession

Two-thirds of UK organisations defrauded since start of pandemic

Nearly two out of three UK companies say they have experienced some form of fraud or economic crime in the past two years, according to a report

Hydrogen’s promise: How fuel cells might power lower-carbon datacentres

Could UK datacentre operators soon adopt emerging hydrogen technologies to reach expanding energy and emissions requirements?

Google Cloud expands European presence with opening of Madrid region

Public cloud giant Google is continuing to build out its datacentre footprint across Europe with the opening of its latest region in Madrid, Spain

Would you like to recommend this contribution? This can be done via:

Klaar voor de beste oplossing voor uw IT & ICT-situatie?

Ik heb mijn wachtwoord gewijzigd in “onjuist.” Dus wanneer ik vergeet wat het is, zal de computer zeggen: “Uw wachtwoord is onjuist.”