IR35 tax proposals at risk of legal challenge

APSCo launches lobbying campaign against changes to IR35 legislation in the public sector

Proposals at risk of legal challenge says Hurley

The recent announcement in the budget regarding proposed reforms to IR35 legislation in the public sector is not only unworkable, disproportionate and unreasonable, it also carries a risk of legal challenge. That’s according to Samantha Hurley, Head of External Relations at The Association of Professional Staffing Companies (APSCo), who today announced the launch of what will be extensive lobbying activity on behalf of its members.

The current legislation gives responsibility and liability for determining whether or not an assignment falls within IR35 to the individual worker. The proposed reforms will mean that from April 2017, recruitment firms will be responsible for determining the status of an assignment under IR35, of any workers they supply to the public sector. They will also be liable for any unpaid taxes.

“One of the historical issues with IR35 legislation is that there is no statutory test to establish employment for tax purposes, and so determination is made based on a number of factors“, says Samantha Hurley, Head of External Relations at APSCo.

“HMRC says it will introduce a simple test to help engagers decide whether or not IR35 applies. Given the large body of case law relating to this question, if there were a simple answer, I think the Courts would have found it. As it is, if HMRC is intending on producing an over- simplified test in line with the ‘supervision direction or control test’ which HMRC has introduced for other intermediary tax legislation, we are extremely sceptical that it will be appropriate.”

Legal Challenge
“This is an unreasonable burden which we believe is open to legal challenge”, says Hurley. “Recruitment firms do not have a close operational relationship with either the end client or the worker, both of which which they would need to be able to ascertain tax status.”

“Recruitment firms would not typically be present at the client’s site and therefore have no visibility of the role undertaken or how the services are performed. Consequently, in order for a recruitment firm to apply HMRC’s proposed test, it would need to obtain the required information from both end client and worker.”

However, what about the scenario where the end client – or the worker - either refused to give information – or gave the wrong information? The recruitment firm would be liable when it is unable to verify any information - it has to rely on other parties to provide it which leaves the proposals wide open to legal challenge:

• There is a principle well established in tax law which shows that it is not reasonable to give parties obligations when they have no means of obtaining the information to fulfil them.
• Under the European Convention on Human Rights, Article 1, Protocol 1, all tax systems have to be proportionate, reasonable, public and predictable.

“The proposals are therefore unjust as recruitment firms could be bearing penalties attributable to other people’s conduct over which they have no control.”

“Obviously we are not against the correct payment of taxes and, clearly, individuals running Personal Services Companies (PSCs) should be operating IR35 where appropriate and paying the right amount of tax. However, it should not be the job of the recruitment firm to determine that individual’s status when the public sector employer itself has ready and immediate access to the necessary information. The government is effectively treating recruitment firms as its pay-rolling service, whilst ensuring that the public sector users have no similar burdensome responsibilities or liabilities.”

Ends

Foe further information contact Tracey Barrett, BlueSky PR on 01582 790702 tracey@bluesky-pr.com