Call for alignment of tax and employment law for contractors

A report from an All-Party Parliamentary Group calls for a review of legislation around contracting, with a focus on rights for those who fall inside IR35 legislation, and for action against malpractice by umbrella groups.

employee using calculator


The Government should commission a follow-up review to the Taylor Review on modern working practices which should investigate the best way to structure, remunerate and tax professional contracting and freelancing fairly, according to an All-Party Parliamentary Group inquiry into contracting.

The Loan Charge All-Party Parliament Group says tax and employment law should be aligned and calls for a simplification of the tax system. It claims it is unfair for workers who are taxed as employees are denied the rights and benefits of an employee or recognition in employment law and says that anyone who is taxed as an employee should also receive the corresponding benefits.

It also calls for all workers who come inside IR35 legislation – which was extended this month to the private sector – to be given full rights under all legislation dealing with agency workers, with a clear and transparent right to holiday and sick pay.

In addition the report highlights abuse in the system and says the Government should proceed as quickly as possible to clean up the supply chain, which it calls the ‘wild west’, and make it unlawful for an employment business to offer a position that is conditional on using a specified umbrella company or payment intermediary. It also highlights the need for action over agencies who receive financial incentives or ‘kickbacks’ from umbrella companies.

Other issues covered in the report include:

  • the need for clearer and stronger guidance about what is ethical and acceptable when it comes to the charging of fees for being on preferred supplier lists.
  • the need for a more proactive approach by HMRC to schemes that mis-sell to contractors, freelance and locum workers and for action against agencies/umbrella companies/payment intermediaries over tax avoidance, unlawful
    deductions of tax or unlawfully retained holiday pay
  • a recommendation that the Government should examine whether there should be certain roles in certain
    situations where an employer must engage fully employed permanent workers and not self-employed
    contractors or freelance staff.

The report calls for a full inquiry into the supply chain and how best to recognise, remunerate and tax professional contracting and freelancing;  a full debate on this and on malpractice in the supply chain during the passage of the forthcoming Finance Bill; and the setting-up of a Government-supported independent review into professional self-employment.

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