Universal Definition of Employment Status
The Treasury have confirmed that they have taken up the suggestion of the Office of Tax Simplification that they come up with a universal definition of employment status.
If they can achieve that, it will be a huge relief to UK contractors and their accountants as well as all the various trade bodies.
Currently, there are three major factors, Control, Direction and Supervisions Mutality of Obligation and the Right of Subsitution that determine IR35 and nine lesser IR35 factors.
Contract of Service or Contract for Services
These are all to help judge whether a contractor’s contract is a contract of service, which would signal that he, or she, was an employee or a contract for services, which would signify that he, or she, was an oustide supplier of services to a company – just like any outside supplier of goods or services to a company.
It is a complete minefield and some of the factors are ridiculous.
History of IR35 and Contractors
For instance, IR35was set up in 1999 to catch disguised employees.
Those were people who left a permanent job at a company on a Friday only to start as a contractors at the company on the Monday, doing the same job in the same place.
Of course, as we know, it caught more than those ‘disgusied emplyees’ in its net.
Contractors who had been operating as contractors for many years got caught in its net too.
Control, Direction and Supervision
However, if one of those disguised employees was judged on the Control, Direction and Supervision IR35 factor, he, or she, would be more likely to fall outside IR35 than a contractor whom he had hired the previous week.
As the disguised employee knew the company well, and may even have been a Project Manager, he, or she, would be less likely to have to be told what he had to do than the career contractor that he, or she, had hired a week before.
That’s just one of the ridiculous factors that currently show employment status and whether contractors are caught by IR35 or ar outside it.
So, a new universal definition of employment status would be great news for contractors – or would it?
Genuine Definition of Employment Status
It would be great news if the Government and HMRCw ere to look for a genuine definition of what is employment and what is not.
However, the Government make the rules.
They can decide what is employment and what is not.
They own the ball. They control the game.
HMRC History on IR35 Tests
HMRC have a history on this.
The PCG, now IPSE, sat down with them and came up with a Business Entity Test that would show contractors whether they were inside IR35 or not.
Unfortunately, when it came to the weighting factors for the results of the test questions and the marks and the mark you had to get below, HMRC decided it was their ball, ditched the PCG and decided those all on their own.
As a result, the Business Entity Tests showed virtually all contractors caught by IR35.
This had no bais in law at all.
They have now been scrapped.
Honest Definition of Employment Status or Dishonest One
So, it depends if the Government want a real definition on what constitutes employment and what does not to replace the current IR35 maze or whether they just want a whole load more tax from contractors.
They make the rules and they can do what they like.
What we need urgently is a universal definition of employements status that really defines what is an empoyee and what isn’t.
Will we get it?
We shall see!