HMRC has been urged by a number of trade groups to scrap plans to extend IR35 self-employed tax regulation into the private sector.
Fears have been raised by the Association of Independent Professionals and Self-employed (IPSE) and the Freelancer & Contractor Services Association (FCSA) that the government’s “Off-payroll working in the private sector” consultation – which ended on Friday 10 August – was merely a formality, with HMRC expected to usher IR35 tax reforms into the private sector.
What is IR35?
IR35 was first introduced in 2000 as a way to combat tax avoidance through “disguised employment”. It dictates how freelancers and contractors are taxed when working for a client.
The rules allow HMRC to “look through” an intermediary, such as a Personal Service Company (PSC), and consider whether it is appropriate for the individual to operate in PAYE and pay National Insurance contributions (NICs).
However, groups representing Britain’s self-employed have declared IR35 reform a failure in the public sector, with many risks posed to small business prosperity if reforms are carried into the private sector.
Andy Chamberlain, IPSE’s deputy director of policy, said: “Extending the changes to IR35 to the private sector would be extraordinarily short-sighted – especially now.
“If you believe many economists, the UK is already staring into a Brexit-shaped abyss. Why would the government want to introduce a measure that will damage one of our greatest competitive advantages: our flexible economy?”
Read more about IR35:
- What is IR35 and does it affect you as a business owner?
- Why rolling out IR35 into the private sector could be catastrophic for the economy
- Former BBC presenter to pay HMRC over £400,000 after losing IR35 case
- “Mistruths and denials”: HMRC accused of misleading chancellor on IR35 reforms
Chamberlain added that IR35 changes led to walkouts, project delays and cancellations in the public sector.
“There are many more self-employed people in the private sector, so the damage from this could be far more significant.”
“There is already widespread confusion about employment status law in the UK. Taxing more self-employed people as if they were employees – without giving them any of the employment benefits – would only add to this and further complicate this tangled issue.
“Therefore, with Brexit hanging over the country, IPSE’s response to the government’s consultation was clear: don’t do it, and definitely don’t do it anytime soon.”
Like pouring glue on the flexible workforce
Dave Chaplin, CEO of ContractorCalculator, claimed that applying IR35 to private sector companies would be “like pouring glue on the UK flexible workforce just as we attempt to cope with Brexit”.
Chaplin warned that businesses would struggle to hire freelancers “in any easy way” due to costly assessments, while HMRC’s Check Employment Status for Tax (CEST) tool creating friction between hiring firms, workers and agencies.
He added: “We already have a payroll tax, namely employers National Insurance, paid by employers when they hire employees. If the government wants to raise more tax revenue from those who work self-employed – or ‘off-payroll’ – then the simple solution is to create a new off-payroll tax paid by everyone and forget about the strategy of reclassifying workers as ‘deemed employees’.”
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