GlaxoSmithKline (GSK) has been at the heart of an HMRC crackdown as almost 1,500 self-employed contractors are accused of being “disguised employees” under new IR35 rules.
IPSE, one of the UK’s leading associations for self-employed, has warned that this confusion is “only a taste of things to come”.
HMRC employment status crackdown
Last week, letters were sent from HMRC to contractors working across several GSK departments, which suggested if they accepted the contracts they had been provided with, they'd be caught by the IR35 rules, as disguised employees.
HMRC has suggested that it had evidence of incorrect employment status classification within the pharmaceutical industry, which is why contractors at GSK were contacted.
Alasdair Hutchinson, Policy Development Manager at IPSE said, “These letters are yet another example of the chaos caused by IR35. And this confusion is only set to get worse when the changes to IR35 are extended to the private sector next April.”
“HMRC has lost six out of the last seven IR35 cases, and when it cannot interpret its own legislation, how can it possibly expect businesses across the UK to? This uncertainty adds a huge burden both to microbusinesses themselves and the companies that rely on them to drive innovation.
“The government urgently needs to pause and rethink this damaging legislation before it’s too late. The self-employed are one of the most productive and dynamic sectors in the UK economy. Instead of stifling freelancers with clumsy legislation, the government must develop a modern tax system that works for them - not a telegraph-era system in a digital age.”
There is a “sense of panic among contractors’ private sector engagers” according to IT contracting community, ContractorUK. This stems from the lack of clarity surrounding some of the rules and how they’re interpreted, particularly within complex supply chains involving different entities.
IR35 in the Private Sector
IR35 was originally introduced in the public sector as a means of stopping tax avoidance for those who provide their services to clients through limited companies, who would otherwise be taxed like an employee to reduce their tax liability.
From April 2020, private sector companies will be responsible for determining the IR35 status of the people who provide services to them, so long as they have more than 50 employees, £10.2m annual turnover or a balance sheet of more than £5.1m.
You can read more about IR35 here.
Shift in responsibility
According to HMRC’s guidance, published on 22nd August, 2019, you will be responsible for determining the employment status of workers and will need to:
- Decide the employment status of a worker for every contract you agree with an agency or operative.
- Pass the determination and the reasons behind it to the worker and the person or organisation you contract with.
- Make sure you keep detailed records of any employment status determinations that you make, along with the reasons for the determination and any fees paid.
- Have a clear process in place to deal with any disputes that might arise for these determinations.
As the IR35 reform draws near, private sector companies need to be aware of these changes and ensure that they can say, with confidence, whether the classification of operatives is correctly inside or outside of IR35 legislation.
At IN-SYNC, we’d strongly advise that you take guidance from a specialist in this area to protect your business and your workforce. Get in touch if you'd like some advice on how to manage your workforce compliantly.
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