Good to see the Coalition coming good on their promise of reviewing IR35. The announcement of the creation of the Office for Tax Simplification was rapidly followed by the publishing of its Terms of Reference. This made really good reading since they contained a specific statement of IR35 as a prime target for their review.

Needless to say this has prompted an immediate flurry of speculation about how IR35 would be replaced with something more draconian. For example, the new head of the OTS, John Whiting, mentioned 80/20 when talking about their proposed plan of action, which some have immediately translated into meaning the OTS would resurrect the failed and discredited Australian idea that to be a real freelance, no more than 80% of your income should come from a single client. Heigh ho…

As I’ve said before, there is a real difficulty distinguishing between genuine one-man companies and those who use a Limited Company purely as an artificial tax avoidance vehicle. But however the OTS suggests we square that particular circle, I’m fairly sure the 80/20 rule will not be part of it.

Meanwhile this whole (and rather premature!) debate has prompted some other thoughts.

Key to any resolution to the IR35 question is defining a freelance worker. While the traditional model in UK economics defines everyone as either employer or employee, in reality there is a third category of “none of the above”. If that third way was properly enshrined as a working model, consider the many areas where things would become much clearer.

Firstly, there is the vexed question of business expenses. As we know, travel and subsistence expenses for a temporary workplace cease after two years. While this makes perfect sense for a permanent long-term employee, it is nonsense for someone like me who takes work wherever it may be found. Why should I personally be penalised if my company’s client base happens to be based in the same approximate geographical area?

Secondly ID checking and the right to work in the UK, while important, is the responsibility of the employer. My clients are not my employers; in fact most of my contracts go to great lengths to prove they are not. If we allow me to be an independent worker, that checking becomes unnecessary since my company can make the necessary declarations and accept legal responsibility for their accuracy.

Thirdly, liability for payment of taxes could go down to the individual and not, as at present under S44-47, up to the intermediary company (which in most cases would otherwise be the agency). That would step around a huge amount of contractual debate of who is an employee of whom, which incidentally would only help resolve the IR35 “problem”.

Finally there are a raft of current and future issues with the Agency Workers Directive and the Agency Regulations that would cease to be of any relevance. For example, we have to go through the nonsense of opting out of the Agency Regulations when, as any fool knows, the way this is routinely done means you are in fact opted in anyway.

And, looking a bit further over the horizon, it is clear that the EU has no concept of the UK model for the freelancer worker. If we can establish our legitimacy up front right now, we would avoid a whole new set of problems.

The UK Freelance is a hugely valuable factor in the UK economy. There are around 4.8 million of us. Why is it so hard to get that fact recognised in law?

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Image: paranoid polaroid by Andrew Mason

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