Some brutal truths about IR35.

As 90% of contractors at the UKHO resign over IR35, a contractor shares his thoughts…

“There are many reasons IR35 was a shockingly bad piece of legislation. From a personal perspective here is my take on it:

Being inside IR35 basically says that you are really an employee of your end client and trying to disguise the fact. This would be much worse than being an employee for the following reasons:

VAT liability – I asked Her Majesty’s Customs and Excise if I could I deregister for VAT if I was inside IR35. Their reply was that I would still have to charge VAT and that were my company not to do so they would ultimately come after me as a director for criminal fraud. As most of my clients were Financial Institutions who could not claim back VAT, the full amount charged was paid 100% to the treasury. NO EMPLOYEE WOULD BE EXPECTED TO CHARGE OR COLLECT VAT. Nor would they be crimally liable if it were not charged.

During my work for clients my company had to carry Professional Indemnity Insurance. This was almost always written into the client contact. If I was working on financial trading systems, often the premiums for this would be excessive. My company had to also provide Public Liability Insurance. NO EMPLOYEE WOULD BE ASKED TO PROVIDE PROFESSIONAL INSURANCES TO INDEMNIFY THEIR EMPLOYER.

My responsibilities as a company director meant I was responsible for filing Company Accounts and Returns. The clients I worked with would not hire me unless I traded through a Limited Company. NOT ONE EMPLOYEE WOULD BE ASKED TO FILE COMPANY RETURNS, LET ALONE PAY FOR THEM OR BE RESPONSIBLE FOR THEM.

The ultimate injustice was that if I truly was an employee as the Inland Revenue were asserting. they would ask me to pay the Employer National Insurance. NO EMPLOYEE PAYS EMPLOYERS’ NATIONAL INSURANCE. I would also be responsible for the payment of PAYE income tax and Employees National Insurance. NO EMPLOYEE IS RESPONSIBLE FOR PAYING PAYE INCOME TAX AND EMPLOYEES NATIONAL INSURANCE, as this is normally deducted by the employer.

Along with this I would have no employment rights, paid holiday or paid sick leave. AN EMPLOYEE HAS ALL THESE LEGAL RIGHTS.

I personally have no problem paying employee levels of tax. What I object to is paying both employee AND employer taxes. Especially when I have no employee rights and a stack of employer obligations.

Considering all of the above, it is unsurprising wonder that the introduction of IR35 directly caused the “contractor scheme” boom of the early 2000’s…