What Happened To The Tsunami?

The forecast for 6th April 2021 was a Tsunami of epic proportions. A tidal wave of IR35 legislation sweeping everything away.

I have not become a weather forecaster, just an accountant who has spent a great deal of time over the last few years troubled by the changes that will affect our clients from the new unfair and not well thought out Off-Payroll legislation.

6th April has come and gone and is causing problems for many of our clients. However, the full Tsunami style total destruction has not come about.

Many end clients have chosen, somehow or another, to assess freelance contractors as outside IR35, who are then able to continue to work through their limited companies without any change to their tax position.

A good indicator that this legislation is bad and not well designed is that, in the end, it appears that the crucial status decision determining whether a freelance contractor is working like an employee or like a freelance worker is down to the willingness of the end client to view the contracts and working circumstances in a fair way, but not the legislation itself.

Those end clients who quickly make a decision that a worker is inside IR35 are the ones who are being unfair in using methods, such as the HMRC CEST assessment tool, to arrive at their predicted decision. They want to get rid of the new tax risk so they ‘fix’ the results to achieve their objective.

The good news is that many end clients are finding contractors outside of IR35 and I hope that those rogue end clients making inside IR35 determinations will find it hard to get a skilled workforce to service their projects and in months to come will miraculously reconsider their inside IR35 determinations.

For any contractor finding that they have been assessed as inside IR35, I would recommend looking elsewhere for work that is outside IR35. The work is out there with many end clients providing outside IR35 contracts.

Also, even if you don’t want to give up your current inside IR35 contract, then look for a smaller contract elsewhere that is outside IR35. It is the contract that has been assessed as inside IR35 not your company and you can be engaged in a few contracts at the same time. Network around your particular specialism and you may find good work that you did not think was available.

In summary, I think the Treasury and HMRC, backed by successive governments, have never addressed the freelance tax challenge fairly and have once again built a house on bad foundations. They succeeded quite well in April 2017 with the Public Sector Off-Payroll legislation, but as often is the case with civil servants who had not worked in real small business, they have no concept of the will to generate business and make profit that exists in the Private Sector.

After the acknowledged failure of tax compliance for the last 20 years of IR35, I predict they will find themselves in a position of not being able to cope with the volumes of challenges that will be needed to achieve the tax compliance they are looking for from this new Off-Payroll legislation.

So, I may not be a weather forecaster but I see that the promised tax Tsunami has not arrived. Here’s hoping that my tax predictions hold true.

Best regards,

Victor Korman
Managing Director
Cogent Accountants